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• To begin with, we assume a world with zero interest rate • Three equivalent approaches: • construct a portfolio that consists of the stock (underlying) and the option, so that the risk is cancelled and the portfolio value is the same in both states. This portfolio becomes riskless, therefore it must have the same

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For any American option on the underlying asset Stock, the admissible exercise policies must be stopping times with respect to the natural ltration (Ft)0 t T of the Wiener process Wt. If F(s) is the payo of an American option exercised when the stock price is s, and if T is the expiration date of the option, then its value Vt at time t T is

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🎓 What do binary numbers represent? In mathematics and digital electronics, a binary number is a number expressed in the base-2 numeral system or binary numeral system, which uses only two symbols: typically “0” (zero) and “1” (one). The base-2 numeral system is a positional notation with a radix of 2. Each digit is referred to as a bit.

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