Timeline for Can derivatives of non-lognormal securities be priced using risk-neutral evaluations assuming risk-free drift?
Current License: CC BY-SA 4.0
4 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Aug 3 at 18:42 | comment | added | Jan Stuller | Log-normality is not required at all for risk-neutral pricing. Models such as Heston or Bachelier assume different dynamics than the simple log-normal dynamics in the Black-Scholes model and they give the correct option prices, whilst the underlying still has to compound at riskless drift due to no-arbitrage between the spot and the forward. | |
| Aug 3 at 7:35 | comment | added | Frido | @Arshdeep 's answer is in essence correct. At risk of stating the obvious I'd like to add that the asset needs to be a tradable to use $r$ as drift. If it's not tradable you can't buy/sell it and hence you don't need to fund it and hence $r$ is not required. | |
| Aug 3 at 3:17 | answer | added | Arshdeep | timeline score: 1 | |
| Aug 3 at 0:38 | history | asked | Thomas Redding | CC BY-SA 4.0 |