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One-Period Binomial Model Overview by Valentin Is is a document available to read on EtoBox.

What is One-Period Binomial Model Overview about?

The document describes a one-period binomial model for pricing derivatives. It provides an example of using the model to price a European call option on a stock. The model assumes the stock price can move up or down between two time periods. It then shows how to construct a replicating portfolio that matches the payoffs of the option. The value of the option today must equal the value of the replicating portfolio today to avoid arbitrage opportunities. This allows the option to be priced by solving for the

Author

Valentin Is

Language

EN