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1 vote

Possibility of obtaining a positive mathematical expectation in a quoted currency

When Siegel wrote his famous article in 1972, a widely accepted theory of forward rates was the Unbiased Expectations Hypothesis, that the forward price (or futures price) of a currency was equal to ...
nbbo2's user avatar
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1 vote

Can someone please help me answer this question about Black-Scholes model? (risk-neutral & true probability of the call option)

The unique solution of the stochastic differential equation that is mentioned: $$dS_t = S_t\mu dt + S_t \sigma dW_t$$ is given by: $$S_T = Se^{(\mu - \frac{\sigma^2}{2})(T-t) + \sigma (W_T-W_t)}=Se^{(\...
lukada's user avatar
  • 21
3 votes

Roll Critique - CAPM and mean variance tautology?

Let $R$ denote the vector of risky asset returns, $\Sigma:=\text{Cov}[R]$ the covariance matrix of returns, $\mu:=E[R]$ the vector of expected returns, and $r:=R_f$ the risk-free rate. Recall that the ...
Alphie's user avatar
  • 131
0 votes

Is this arbitrage? Infinite payoff / infinite loss (energy generation investment problem)

Consider your scenario as a market with 1 traded asset $V$, with state-dependent payoff $\pi_1 - C^G$. We can construct an equivalent martingale measure $\mathbb{Q}$ by $\mathbb{Q}(w_1) = 60/290$, so ...
Achrbot's user avatar
  • 178
1 vote

Is this arbitrage? Infinite payoff / infinite loss (energy generation investment problem)

Arbitrage means that you can a profit (in at least some states of the world), without the risk of losing. IIUC, in your state 2, you'd make a loss, and the bigger your investment x, the bigger the ...
Enrico Schumann's user avatar
0 votes

Two-period binomial model probability question

Answering both questions: Your answer is correct. Is the comma (in the probability function) an "And" or a "Or", what is the mathematical notation used? From what you answered, it ...
KaiSqDist's user avatar
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