Past Events

Abstract: As a step toward multi-period trees and, eventually, stochastic differential equations, this talk will develop the no-arbitrage price of a derivative security using a one-period binomial tree model. The price will be shown to be an expectation, under the measure making the underlying security’s discounted price process a martingale, of the discounted value of the portfolio replicating the derivative’s payoff. If time permits, multi-period trees and American options will be discussed.