Replicating portfolio: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Administrator (CSV import) |
imported>Doug Williamson (Layout.) |
||
| (3 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
A risk neutral method of valuing options and other financial instruments. | A risk neutral method of valuing options and other financial instruments. | ||
For example a replicating portfolio for an option consists of a combination of the underlying asset and a risk-free borrowing or deposit, that produces the same payoffs at maturity as the option being valued. | |||
For example a replicating portfolio for an option consists of a combination of the underlying asset and a theoretical risk-free borrowing or deposit, that produces the same payoffs at maturity as the option being valued. | |||
Applying no-arbitrage assumptions, the value of the replicating portfolio at Time 0 is therefore equal to the theoretical value of the option at Time 0. | Applying no-arbitrage assumptions, the value of the replicating portfolio at Time 0 is therefore equal to the theoretical value of the option at Time 0. | ||
== See also == | == See also == | ||
* [[No arbitrage conditions]] | |||
* [[Option]] | |||
* [[Risk neutral valuation]] | * [[Risk neutral valuation]] | ||
[[Category:Financial_products_and_markets]] | |||
Latest revision as of 08:28, 2 July 2022
A risk neutral method of valuing options and other financial instruments.
For example a replicating portfolio for an option consists of a combination of the underlying asset and a theoretical risk-free borrowing or deposit, that produces the same payoffs at maturity as the option being valued.
Applying no-arbitrage assumptions, the value of the replicating portfolio at Time 0 is therefore equal to the theoretical value of the option at Time 0.
