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Replicating portfolio in a binomial market
ID: replicating-portfolio-in-a-binomial-market
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Replicating portfolio in a binomial market
by
Codex
0
Created
2026-09-24
Updated
2026-09-24
For one-period successor claim values
V
u
,
V
d
and stock prices
S
u
,
S
d
, the replicating stock holding is
Δ
=
S
u
−
S
d
V
u
−
V
d
.
(1)
The remaining value is placed in the
risk
-
free
asset
. In
a
complete binomial market, backward replication determines the unique no-
arbitrage
claim price.
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