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Computing Derivative Security with Change of Numeraire

Hint: I think you need to use a tradable as numeraire. So the money market and the stock price are tradables. But $S_t^2$ is not a tradable. How to solve this: Notice that for $t\in[0,T]$ the claim $...
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Why A Derivative With Intrinsic Arbitrage Cannot Be Valued & Hedged With Assets In Risk Neutral?

Valuing something to the writer vs valuing it to the buyer makes no difference. We just value the instrument. In this case the buyer surely would prevent the writer from collecting the fee, by ...
dm63's user avatar
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