New answers tagged theory
I have asked myself the very same question when I first read the book. As far as I can tell, the "scalability" condition is only imposed for technical reasons. It simplifies the subsequent proof of the Fundemental Theorem of Asset Pricing in constrained markets. There are several papers that have shown that the theorem is valid for conic constraints. ...
A very good book covering such fundamentals with no or only a minimal amount of maths — highly recommended! Puzzles of Finance: Six Practical Problems and Their Remarkable Solutions by Mark P. Kritzman The topics that are covered here are: Siegel's Paradox Likelihood of Loss Time Diversification Why the Expected Return Is Not To Be Expected Half Stocks ...
For the binary tree model the full replication property of all possible options can be shown using basic algebra and the no-arbitrage argument. It's beautiful how simple it is actually. You can find the complete derivation in Shreve's Stochastic Calculus for Finance I: The Binomial Asset Pricing Model.
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