# Questions tagged [finance-mathematics]

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### Formula for conditional expectation. Related to the Fundamental Theorems of Asset Pricing

Let $\lambda$ be a probability measure on $\Omega$ (finite), with filtration $\{\mathcal{F}_t\}$. Define $\nu(X) = \lambda\left(X\frac{d\nu}{d\lambda}\right)$, where $\frac{d\nu}{d\lambda}$ is a ...
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### Application of Ito's lemma

Let $X_t$ be some stochastic process driven by wiener process ($W_t)$ so it can be expressed as: $$dX_t=(...)dt+(...)dW_t$$ Let $f(t,x)$ be some $C^2$ function. Define the process $Z_s=f(t-s,X_s)$ ...
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### Law of One price and the Inconcistent pricing strategy

Background Information: A market satisfies the Law of One Price if every two self-financing strategies that replicate the same claim have the same initial value. An inconsistent pricing strategy is ...
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### Finding the extrinsic value of an option with conditions

Background: Consider a spread option with the payoff $\max (P_{T} - HR\times G_T, 0)$, where $P$, $G$ are underlying prices and $HR$ is a constant. Let's also assume, that the correlation ...
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### Mark Joshi, Quant Interview Question problem 2.34; replicating a digital option on a 4-step symmetric binomial tree

Question: Team $A$ and team $B$, in a series of $7$ games, whoever wins $4$ games first wins. You want to bet $100$ that your team wins the series, in which case you receive $200$, or $0$ if they ...
593 views

### Two-period binomial model with dividends

Consider a two-period binomial model for a risky asset with each period equal to a year and take $S_0 = 1$, $u = 1.15$ and $l = 0.95$. The interest rate is $R = .05$. a.) If the asset pays 10% of its ...
I have a very fundamental problem, please help me out. I am little confused with the derivation for the close form solution for the Geometric Brownian Motion, from the very fundamental stock model: \...