Risk-Neutral Pricing Framework

Raymond H. Chan, Yves ZY. Guo, Spike T. Lee and Xun Li
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Raymond H. Chan: City University of Hong Kong
Yves ZY. Guo: BNP Paribas CIB
Spike T. Lee: The Chinese University of Hong Kong
Xun Li: The Hong Kong Polytechnic University

Chapter Chapter 16 in Financial Mathematics, Derivatives and Structured Products, 2024, pp 195-215 from Springer

Abstract: Abstract The risk-neutral pricing framework is about the analysis and techniques for derivatives hedging and pricing. The pioneer work of Black, Scholes and Merton marked the beginning of the development of both theory and practice. The delta (i.e., the quantity of underlying assets for hedging) for some of the derivatives such as forward and futures contracts is constant and can be determined by arbitrage without stochastic modelling (see Part I), while the delta for other derivatives is dynamic and requires stochastic modelling (which also covers forward and futures).

Date: 2024
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DOI: 10.1007/978-981-99-9534-9_16

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