The risk-neutral pricing formula for a derivative with terminal payoff at time is . This means the price at time is the conditional expectation of the discounted terminal payoff.
Conditions: Used in the risk-neutral pricing setting.; Discounting uses the factor .; is the payoff at time , and is the price at time .
The risk-neutral pricing formula for a derivative with terminal payoff at time is . This means the price at time is the conditional expectation of the discounted terminal payoff.
Conditions: Used in the risk-neutral pricing setting.; Discounting uses the factor .; is the payoff at time , and is the price at time .