Microsoft PowerPoint - PoF.ppt

The replicating portfolioƒ 202

Time 0: V

0

... no-arbitrage price of the derivative, to be

determined.

ƒ

Time 1: The payoff of the derivative will be one of two values: V

(H) or V 1

(T). 1

Derivative securities: Options - Binomial asset pricing modelƒ