Hot answers tagged

3

well solve for the value of $q$ that makes the value of the stock divided by the bond be a martingale. You will find that only one value does so. It is the one you posted. If you then define the discounted value of an option to be its expectation of the discounted pay-off, its discounted value is a martingale. So the discounted value of everything is a ...



Only top voted, non community-wiki answers of a minimum length are eligible