Pergunta de entrevista da empresa Morgan Stanley

Why risk neutral pricing? How to calculate expected return under risk neutral.

Resposta da entrevista

Sigiloso

30 de mar. de 2020

Risk-neutral pricing assumes people are risk-neutral, hence p0 = E(p1)/(1+R) under Q measure. This is suggesting that people's view on today's asset price does not depend on price variance tomorrow, it only depends on the expected return. In a binomial model, we found the risk-neutral probabilities using the non-arbitrage theory (u>1+R>d) and the condition.