Abstract
Chapter 4 shows how the no-arbitrage theory of derivative pricing in the single-step models of Chapter 3 extends to multi-period financial models with any number of risky assets, which can be viewed as a succession of single-step models. The key notion is that of a predictable self-financing trading. The fair price of an attainable European derivative is identified without the need for probability theory by means of replication, using the Law of One Price. Some of the key features of European calls, puts and forwards are highlighted, and the chapter concludes with a discussion and result on completeness.
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© 2012 Springer-Verlag London
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Cutland, N.J., Roux, A. (2012). Multi-Period Models: No-arbitrage Pricing. In: Derivative Pricing in Discrete Time. Springer Undergraduate Mathematics Series. Springer, London. https://doi.org/10.1007/978-1-4471-4408-3_4
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DOI: https://doi.org/10.1007/978-1-4471-4408-3_4
Publisher Name: Springer, London
Print ISBN: 978-1-4471-4407-6
Online ISBN: 978-1-4471-4408-3
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