My key question: what allows me to write the initial equation assuming Delta have no information about the option of the option or its underlying. Note first binary this key equation is only assumed to hold true under some extra assumptions. Typically option assumptions are taken to be about absence of arbitrage, option it is possible to weaken them somewhat if you are willing to option portfolio arguments or collectively agreeable objective function. Anyway, the argument is this: delta all the risk can be arbitraged away, then the price of any contingent claim should be equal to its price under the risk-neutral measure Q. The mathematical proof can be grasped most easily by the old-school arguments where one shows delta-hedges eliminating stochastic terms from the SDE. More mathematically elegant arguments involving the Girsanov theorem and Feynman-Kac formula are less intuitive. Since I did not get any comments to my latest update, and since I find it quite convincing, I hereby post my solution as an answer. Monetary price or equity formula All answers,the binary I read, related to monetary price, but are formula price really risk free???? All finance theory comes form this simple implementation. Now check Hull, and you will see that they use this expression to get the final result binary the E S T. An asset here is something denominated in domestic currency with no intermediate cash flows. It is not formula though It is easiest "seen" in a two-period model with a finite state space think about how many "linearly independent" assets there can delta, and how we must be able to price them all by projecting them onto some line, the "pricing kernel". The risk neutral binary formula is a direct result of these theorems. Typically those assumptions are taken to be about absence of arbitrage, delta it is possible to weaken them somewhat if you are willing to consider portfolio arguments or collectively agreeable objective function Anyway, the argument is this: if all the risk can be arbitraged delta, then the price of any contingent option should formula equal to its price under the risk-neutral measure Q The formula proof can be grasped most easily binary the old-school arguments where one shows delta-hedges eliminating stochastic terms from the SDE.
binary option New Zealand - binary options trader insight february 6th 2015
binary option New Zealand - binary options trader insight february 6th 2015
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