For equity options, the pricing of options depends on the existence of a replicating portfolio, so you can price the option as the constituents of that replicating portfolio. However, I am not seeing ...
Noob here. I've been trying to gain a better understanding of variance swaps and what better way than to replicate it with a portfolio of better understood instruments. I have read the GS 1999 ...
Assume there are 3 states of the world: w1, w2, and w3. Assume there are two assets: a risk-free asset returning Rf in each state, and a risky asset with Return R1 in state w1, R2 in state w2, and R3 ...
Just trying to check my logic here: Let $Z(t,T)$ be a Zero-Coupon Bond with maturity $T$ bought at time $t$, $S_m$ be the spot interest rate for time $m$ and $S_n$ for time $n$ respectively, where $n ...