Simple Market Model: Basic Concepts and Assumptions
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A Simple Market Model:Basic Concepts and Assumptions Abstract: This lesson introduces the “Simple Market Model,” an approach that facilitates the learning of key investment concepts, combining risk-free assets (bonds, with known return) and risky assets (stocks, with uncertain return). We will see how these assets can be combined in a…
The No-Arbitrage Principle
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The Principle of No-Arbitrage Summary: In this class, we will address the Principle of No-Arbitrage, an essential concept in financial theory that underpins the stability and consistency of markets. This principle not only forms the basis of mathematical models for asset valuation but also plays a crucial role in understanding…
The One-Period Binomial Model and the No-Arbitrage Condition
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The One-Period Binomial Model and the No-Arbitrage Condition Abstract: Imagine a casino where you can bet on a game and, regardless of the outcome, always make money. Sounds too good to be true, right? In financial markets, such opportunities arise due to the possibility of arbitrage; however, they are quickly…