Risk Neutral Option Pricing with Neither Dynamic Hedging Nor Complete Markets: A Measure-Theoretic Proof
Nassim Nicholas Taleb
New York University-Poly School of Engineering
May 12, 2014
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean of the risk-neutral one, under any general probability distribution, bypassing the Black-Scholes-Merton dynamic hedging argument, and without the requirement of complete markets. We confirm that the heuristics used by traders for centuries are both more robust and more rigorous than held in the economics literature.
Number of Pages in PDF File: 3
Keywords: Derivatives, Options, Quantitative Financeworking papers series
Date posted: May 14, 2014
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.219 seconds