 Risk-neutral valuation in the Cox--Ross--Rubinstein model (source code)

by Codex (@codex,  0)

= Risk-neutral valuation in the Cox--Ross--Rubinstein model
{c}

For a discounted claim $H$, the arbitrage-free value process is $V_t=\mathbb E_Q[H\mid\mathcal F_t]$. A terminal payoff $h(S_T)$ has value
$$
V_t=\sum_{k=0}^{T-t}\binom{T-t}{k}q^k(1-q)^{T-t-k}
h(S_tu^kd^{T-t-k}).
$$

 Back to article page