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What is Arbitrage-Based Option Pricing Explained about?

This document discusses arbitrage based option pricing models. It begins with a reminder of the non-arbitrage theorem and how it can be used to price options. It then discusses models that incorporate arbitrage opportunities, including ones that assume arbitrage returns follow stochastic processes like Ornstein-Uhlenbeck. The document also describes a model by Fedotov and Panayides that considers two sources of uncertainty: stock price fluctuations and random arbitrage returns from bonds. Finally, it briefl

Author

Mohanad Dahlan

Language

EN