# Questions tagged [binomial]

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### Why risk neutral probabilities should be strictly greater than zero for no arbitrage condition?

I was recently told by a colleague that the risk neutral probabilities should ALWAYS be greater than zero to have a no arbitrage condition. Intuitively, we know probabilities cannot be < 0, but how ...
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### Yearly ytm calculation on stock using binomial model

So I have been given this problem in class, and although I have no issues doing the binomial model on options, I cannot seem to get my head around the problem when its calculating ytm on just a stock. ...
69 views

### Python Numpy FFT array size limit?

I am trying to find the price of an Option based on the fft technique within the binomial model and it works fine until N>40000 where I start getting negative values and weird convergene and I am not ...
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### Non-Negativity of up-factor and down-factor in Binomial No-Arbitrage Pricing Model

Consider a stock which is trading at $S_0$ at time $t=0$ and is expected to be trading at price $uS_0$ or $dS_0$ at time t=1 where $u$ and $d$ are up-factor and down-factor. The theory says that to ...
2k views

### Arbitrage free implies complete market?

In Tomas Björk's Arbitrage Theory in Continuous Time (or here), $\exists$ this proposition It seems that to show that the model is complete, we must show that the claims are reachable. That is, we ...
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### Divergence between binomial pricing and monte carlo simulation for vanilla european call?

I notice a divergence in my own code, but it's evident even in public code: http://www.thalesians.com/finance/index.php/Knowledge_Base/Finance/Option_Pricing_in_Python_and_Simple_English Pricing a ...