Understanding Risk-Neutral Valuation Stephen M Schaefer London Business School March‚ 2012 Outline • The no-arbitrage principle • Arrow-Debreu (A-D) securities and market completeness • Valuing options with one period to maturity via replication using underlying asset and borrowing / lending replication using A-D securities risk neutral probabilities • Valuing options with several periods to maturity Understanding Risk Neutral Valuation 2 No-arbitrage pricing Understanding Risk Neutral Valuation
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COT3103 10/21/2014 Exercises Section 2.5 2. Determine whether each of these sets is finite‚ countably infinite‚ or uncountable. For those that are countably infinite‚ exhibit a one-to-one correspondence between the set of positive integers and that set. a. The integers greater than 10. This is countably infinite. Starting from the first integer greater than 10‚ which is 11‚ one can infinitely count upwards since there is no boundary on the right side of the number line for this instance. The equation
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Bus 320: Quiz 3 Solutions White version True/False Questions: Circle the correct response. (2 points each) 1. T F In theory‚ if two assets have the same expected cash flows they will always have the same price. 2. T F Using margin to buy stocks can negate the limited liability aspect of investing in corporations. 3. T F Management of a company generally prefers non-cumulative to cumulative share voting. 4. T F Since the returns of well-diversified portfolios move very much in line
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Problem: The owners of the Super Supermarket would like to have a program that computes the monthly gross pay of their employees as well as the employee’s net pay. The input for this program is an employee ID number‚ hourly rate of pay‚ and number of regular and overtime hours worked. Gross pay is the sum of the wages earned from regular hours and overtime hours; overtime is paid at 1.5 times the regular rate. Net pay is gross pay minus deductions. Assume that deductions are taken for tax withholding
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Short answers 5. What two things must you normally specify in a variable declaration? You must specify the variable type and an identifier. int n; // type - int‚ identifier - n 6. What value is stored in uninitialized variables? is a variable that is declared but is not set to a definite known value before it is used. Algorithm workbench 3. Write assignment statements that perform the following operations with the variables a‚ b‚ and c. a. Adds 2 to a and stores the result in b b. Multiplies
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1. Is entry into the Argentine market a good strategic move for Continental? Entering Argentine market in 1993-1994 was a good strategic decision for Continental as one of the TOP5 cable TV companies in the US despite certain risks for several reasons: 1. Changes in the US regulatory environment created additional challenges for Continental’s core business: 1992 Cable Act limited the cable TV companies’ ability to raise cable rates whereas costs at market prices reached up to $2000/subscriber
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In Lacsap’s Fractions‚ when looking for a general pattern for the numerator‚ it can be noted that it does not increase linearly but exponentially. Numerators are 3‚6‚10‚ and 15‚ each preceding numerator added by one plus the row number. Using this general statement it can be concluded that the numerator in the 6th row is 21 (15+6)‚ and 28 for the 7th. Generating a Statement for the Numerator: To generate an equation for the numerator of the fraction‚ the fraction data must be organized and
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1 Introduction. Let us consider a triangle of fractions: Obviously‚ the numbers are following some pattern. In this investigation we will try to explain the theory behind this arrangement and to find a general relation between the element’s number and its value. The pattern above is called a Lacsap’s Triangle‚ which inevitably hints at its relation to another arrangement - Pascal’s Triangle (as Lacsap appears to be an anagram of Pascal). The algorithm behind it is very simple: each element
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Lacsap’s Fractions IB Math 20 Portfolio By: Lorenzo Ravani Lacsap’s Fractions Lacsap is backward for Pascal. If we use Pascal’s triangle we can identify patterns in Lacsap’s fractions. The goal of this portfolio is to find an equation that describes the pattern presented in Lacsap’s fraction. This equation must determine the numerator and the denominator for every row possible. Numerator Elements of the Pascal’s triangle form multiple horizontal rows (n) and diagonal rows (r). The elements
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FIN 4414 – Financial Management – Spring 2009 “Arundel” Case Assignment Due: March 23‚ 2009 Case: “Arundel Partners: The Sequel Project‚” HBS‚ Case # 9-292-140‚ Revised 12/92. Main Question: Is $2million per movie a fair price? Why or why not? Additional Questions 1. Provide a brief overview of the proposed venture. Clearly describe the relevant time line. 2. Why do the proponents of this venture believe that Arundel Partners can make money buying movie sequel rights?
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