Tagged Questions
3
votes
1answer
123 views
Foward-start option pricing
Consider a probability filtred space $(\Omega, \mathcal F, \mathbb F, \mathbb P)$, where $\mathbb F = (\mathcal F_t)_{0\leq t\leq T}$ satisfing the habitual conditions and is generated by $1 d $- ...
4
votes
3answers
300 views
Is it possible to demonstrate that one pricing model is better than another?
Take the classic GBM (geometric Brownian motion) model for equities as an example:
ds = mu * S * dt + sigma * S * dW.
It is the basis for the classic ...
10
votes
5answers
1k views
Formal proof for risk-neutral pricing formula
As you know, the key equation of risk neutral pricing is the following:
$\exp^{-rt} S_t = E_Q[\exp^{-rT} S_T | \mathcal{F}_t]$
That is, discounted prices are Q-martingales.
It makes real-sense for ...
