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2 votes

Conceptual problem with risk neutrality-What is a 'risk-neutral world', exactly?

One definition of Risk Neutral is where the marginal utility is constant, i.e., u'(x) = c, for all x. A direct consequence of this is that the stochastic discount factor $m$ $(:=\beta\frac{u'(c_{t+1})}...
EYC.CHANG's user avatar
2 votes

If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?

Yes, IV is indeed possible, at least in theory, to back out of stock prices. This lies, I would say, in the core of the so called structural bond models, which, as far as I know, started out with ...
Mats Lind's user avatar
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3 votes

From parameter risk (sensitivities) to market risk (sensitivities)

Formally, you have two ingredients: a pricing function for your specific instrument, $f$, that depends on some set of model parameters $\mathbf{r}$ a parameterization $\mathbf{F}$ that consistently ...
Kermittfrog's user avatar
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