International Journal of Mathematics Trends and Technology
Volume 43 | Number 4 | Year 2017 | Article Id. IJMTT-V43P531 | DOI : https://doi.org/10.14445/22315373/IJMTT-V43P531
The aim of this paper is to find the value of the option that provides a payoff at some future date based on the value of a non-dividend paying share at the future date using a Binomial or lattice model to calculate the value of the derivative at time"t=0". We will show that how to find the value of the derivative with the help of the risk-neutral probability (Q) measure and the state price deflator approach.In this report, we compare the value of a call option and put option under the risk neutral valuation (the Q -measure) and the real world valuation (The P-measure). Under the risky neutral probability measure (Q measure) we will see that the expectedreturn on the risky stock is the same as that on risk free investment cash and also it investigates what will happen to the state price deflator A_t ifp>q.
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Amir Ahmad Dar, N. Anuradha, "One Period Binomial Model: The risk-neutral probability measure assumption and the state price deflator approach," International Journal of Mathematics Trends and Technology (IJMTT), vol. 43, no. 4, pp. 246-255, 2017. Crossref, https://doi.org/10.14445/22315373/IJMTT-V43P531
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