Why does the price of a derivative not depend on the derivative with which you hedge volatility risk?
I'm trying to derive the valuation equation under a general stochastic volatility model. What one can read in the literature is the following reasoning: One considers a replicating self-financing ...
A binary option with payout \$0/\$100 is trading at \$30 with 12 hours to expiration. Assuming the underlying follows a geometric Brownian motion (hence volatility remains constant), what ...