I read that the Fundamental Theorem of Asset Pricing states, that a market is arbitrage-free if and only if there exists an equivalent martingale measure Q, under which the discounted asset price ...
Why is it enough to know the expected present value of cash flow in risk-neutral framework to price derivatives?
Wilmott book states that its enough to know the expected present value of all cash flow in risk-neutral framework to price derivatives. As I know, to obtain arbitrage-free market we need our ...
This it taken from "Heard on the Street", Section B. Consider a market with $0$ risk-free rate, no transactions costs etc. The IBM stock costs \$75 and does not pay dividends. Design a security ...
Please tell me where I've gone wrong (if I did in fact make a mistake). I'm pricing a long forward on a stock. The usual setup applies: This has payoff $S(T) - K$ at time $T$. We are at $t$ now. ...