One Period Binomial Model

What is a contingent claim?

A type of financial derivative whose future payoff depends on the value of another underlying asset or the occurrence of a specific uncertain event.

What does it mean for a contingent claim to be replicable or reachable?

If there exists a portfolio such that the claim will eventually happen

What do we say if all contingent claims are reachable/replicable?

The market is complete

A probability measure Q is called the _______ measure or risk neutral measure if it satisfies S_n =… in definition 10 of the formula sheet.

Martingale

What is commonly known as the Fundamental Theorem of Asset Pricing?

The market model is arbitrage-free if and only if there exists a risk neutral measure.

What theorem ensures that Q is unique for the one period model?

Uniqueness of Risk-neutral measure.

What is the no arbitrage condition?

0<d<1+r<u