Binomial Option Pricing Model
Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) lesson in Option Pricing Fundamentals. 9 min read, ~1,357 words.
Risk-neutral probability:. One-period price:. Replicating portfolio:,. Multi-period: work backwards from terminal payoffs. Convergence:, gives Black-Scholes in the limit.
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- 6b
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