Intro
Binomial Model
Fair Price
Arbitrage
Replicating a portfolio
Basic Concepts
Striking Price \(K\)
Call Option
Put Option
Forward Contract
Long, Short Position
Buy, Sell
Lend, Borrow
Variables and Parameters
\(t\)
\(X_n\): ?
\(\Delta_n\)
\(B_n\)
\(S_n\)
\(V_n\)
\(K\)
\(u\)
\(d\)
\(r\)
\((1+r)\)
\(\frac{1}{1+r}\)
\(p\)
\(\tilde{p}\)
\(q\)
\(\tilde{q}\)
Evolution
Backwards
No Arbitrage Assumption
\[ 0 < d < 1+r < u \]
Chap 2 # Convex Function # Jensen’s Inequality