Risk Neutral Option Pricing Without Dynamic Hedging, A Measure-Theoretic Proof

[facebookpost https://www.facebook.com/permalink.php?story_fbid=10152111753388375&id=13012333374]

 

Abstract: Proof that under constraints of Put-Call Parity, the probability measure for the valuation of a European option is risk neutral under any general probability distribution, bypassing the Black-Scholes-Merton dynamic hedging argument, and without the requirement of complete markets. The heuristics used by traders for centuries are both more robust and more rigorous than held in the economics literature.

http:// www. fooled by randomness. com/ Option Pricing. pdf

Leave a Reply

Your email address will not be published. Required fields are marked *