The easy route to risk-neutral measure pricing

The principle of pricing in the risk-neutral measure is the foundation of quantitative analysis. I have already written a post which gives an intuitive description of the concept of a risk premium and which discusses some aspects of the risk-neutral approach (see here). In this post I want to look again at risk-neutral pricing. It … Continue reading The easy route to risk-neutral measure pricing

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What is the risk-neutral measure?

Here is a short list of the most common 'big-concept' questions that I was asked throughout my years as a quant (whether coming from people on the trading floor, in control functions, or from newcomers to the team), in no particular order: What is the risk-neutral measure? What is arbitrage-free pricing? What is a change … Continue reading What is the risk-neutral measure?