In the binomial model you don't care about mu: if the stock goes up or down ..your P&L of the hedged call is in both cases zero.
This means that the probability of going up -and hence the value of mu- does not matter if you hedge!
outrun, You right. In BS scheme distributions S up-down are given with the help of explicit parameters (mu, sigma). In binomial scheme distributions up-down are given directly and all constructions are given with the help of [$]S_{down} ,p_{down} ; S_{up} , p_{up} [$] . Though I think one can try to present value mu and express hedging ration in terms of mu. Though no one need that.In the binomial model you don't care about mu: if the stock goes up or down ..your P&L of the hedged call is in both cases zero.
This means that the probability of going up -and hence the value of mu- does not matter if you hedge!
In this paperI submitted a paper to
https://papers.ssrn.com/sol3/papers.cfm ... id=3056738
I will appreciate your comments.
This ("and something else") is a classic3 it is highlighted the difference between no arbitrage and settlement pricing of the options
and something else.
Something is related to my point on options pricing, which interprets premium as settlement between buyers and sellers and therefore implies market risk of the premium. Nonstochastic BS premium is implied by oversimplified problem setting that follows from no arbitrage framework of the pricing problem. It will be o'k if we had sufficient conditions that convince us that buyers and sellers always follow the pricing rule which is directed by BS hedged portfolio.This ("and something else") is a classic3 it is highlighted the difference between no arbitrage and settlement pricing of the options
and something else.
Para subir al cielo,This ("and something else") is a classic3 it is highlighted the difference between no arbitrage and settlement pricing of the options
and something else.
Para subir al cielo,This ("and something else") is a classic3 it is highlighted the difference between no arbitrage and settlement pricing of the options
and something else.
Para subir al cielo se necesita,
Una escalara grande,
Una escelara grande y otra chiquita