Question

which of the following are not true group of answer choices risk-neutral valuation and no-arbitrage arguments give the same option prices. risk-neutral valuation involves assuming that the expected return is the risk-free rate and then discounting expected payoffs at the risk-free rate. a hedge set up to value an option does not need to be changed. all of the above.

Answer 1

The hedge set up to value an option needs to be changed as time passes. A and B are true.

What is risk neutral probability ?

• According to risk-neutral valuation, it is easier to value derivatives like stock options if all assets increase and can be discounted at the same rate.
• In reality, as Black, Scholes, and Merton demonstrated in their Nobel Prize-winning formula, this is an important element that may be employed for valuation.
• If all portfolios provided the same return, a risk-neutral investor would not be concerned about which one they held. We may solve for to find the risk-neutral probability by setting the returns (βα+ (1−β)/α) from the stock (+ (1)/) and the risk-free portfolio (1+r) to equal values.
• The free simulation parameters, such as volatility, are evaluated in a risk-neutral valuation such that the theoretical price and the market price agree.

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https://brainly.com/question/16852674

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Answer 2

The hedge set up to value an option needs to be changed as time passes. A and B are true.

What is risk neutral probability ?

• According to risk-neutral valuation, it is easier to value derivatives like stock options if all assets increase and can be discounted at the same rate.
• In reality, as Black, Scholes, and Merton demonstrated in their Nobel Prize-winning formula, this is an important element that may be employed for valuation.
• If all portfolios provided the same return, a risk-neutral investor would not be concerned about which one they held. We may solve for to find the risk-neutral probability by setting the returns (βα+ (1−β)/α) from the stock (+ (1)/) and the risk-free portfolio (1+r) to equal values.
• The free simulation parameters, such as volatility, are evaluated in a risk-neutral valuation such that the theoretical price and the market price agree.

Learn more about risk neutral probability refer to :

brainly.com/question/16852674

#SPJ4