A simple derivation of risk-neutral probability in the binomial option pricing model

• Autores: Greg Orosi
• Localización: International journal of mathematical education in science and technology, ISSN 0020-739X, Vol. 46, Nº. 1, 2015, págs. 142-147
• Idioma: inglés
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• Resumen

  • The traditional derivation of risk-neutral probability in the binomial option pricing framework used in introductory mathematical finance courses is straightforward, but employs several different concepts and is is not algebraically simple. In order to overcome this drawback of the standard approach, we provide an alternative derivation.