Mediaspace scheduled maintenance: Aug 25, 2026 07:00 - 12:00 AM. During this time, videos will be temporarily unavailable. Check status updates.

Lecture

Multiperiod Valuation and Hedging

In course

FIN-404: Derivatives

This course provides a detailed presentation of the standard models for the valuation and hedging of derivatives products such as European options, American options, forward contracts, futures contract and exotic options. ...

Description

This lecture covers the concepts of arbitrage, martingale measures, and the fundamental theorem of asset pricing in the context of multiperiod models. It explains the absence of arbitrage, the interpretation of equivalent probabilities, and the completeness of financial markets. The instructor discusses attainable derivatives, pricing, and hedging strategies, emphasizing the importance of market completeness in determining replicating portfolios for various financial instruments.

This video is available exclusively on Mediaspace for a restricted audience. Please log in to MediaSpace to access it if you have the necessary permissions.

Watch on Mediaspace

Instructor

Julien Hugonnier

Official source

Ontological neighbourhood

Economics

Microeconomics: Financial economics

Related concepts (32)

Hedge (finance)

A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts.

Risk-neutral measure

In mathematical finance, a risk-neutral measure (also called an equilibrium measure, or equivalent martingale measure) is a probability measure such that each share price is exactly equal to the discounted expectation of the share price under this measure. This is heavily used in the pricing of financial derivatives due to the fundamental theorem of asset pricing, which implies that in a complete market, a derivative's price is the discounted expected value of the future payoff under the unique risk-neutral measure.

Rational pricing

Rational pricing is the assumption in financial economics that asset prices – and hence asset pricing models – will reflect the arbitrage-free price of the asset as any deviation from this price will be "arbitraged away". This assumption is useful in pricing fixed income securities, particularly bonds, and is fundamental to the pricing of derivative instruments. Arbitrage is the practice of taking advantage of a state of imbalance between two (or possibly more) markets. Where this mismatch can be exploited (i.

Fundamental theorem of asset pricing

The fundamental theorems of asset pricing (also: of arbitrage, of finance), in both financial economics and mathematical finance, provide necessary and sufficient conditions for a market to be arbitrage-free, and for a market to be complete. An arbitrage opportunity is a way of making money with no initial investment without any possibility of loss. Though arbitrage opportunities do exist briefly in real life, it has been said that any sensible market model must avoid this type of profit.

Arbitrage pricing theory

In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross in 1976, it is widely believed to be an improved alternative to its predecessor, the Capital Asset Pricing Model (CAPM). APT is founded upon the law of one price, which suggests that within an equilibrium market, rational investors will implement arbitrage such that the equilibrium price is eventually realised.

Related lectures (35)

Asset Pricing Theory: Dynamic Arbitrage Pricing

Covers the first theorem of asset pricing, self-financing portfolios, replication, Kolmogorov equations, and pricing strategies.

Asset Pricing: Theory and Applications

Series covers asset pricing theories, mean-variance optimization, state prices, and risk-neutral measures.

Equilibrium State Prices Determination

Explains the determination of equilibrium state prices in asset pricing through consumption market clearing and budget constraints.

Market Structure: Portfolio, Arbitrage, and Consumption

Explores market structure, portfolio holdings, arbitrage, state prices, and optimal consumption-portfolio choices.

Investments: Portfolio Selection and Asset Pricing