122 Frequently Asked Questions In Quantitative Finance
equation contains aμwhere Black–Scholes contains
r. We can conclude that the fair value of an option is
the present value of the expected payoff at expiration
under a risk-neutral random walk for the underlying.
Risk neutral here means replaceμwithr.References and Further Reading
Feller, W 1950Probability Theory and Its Applications. Wiley,
New York
Wilmott, P 2006Paul Wilmott On Quantitative Finance, second
edition. John Wiley & Sons