Review of probability tools for discrete financial analysis; Conditional probabilities/expectations. Filtrations, adapted and predictable processes. Martingales, submartingales and supermartingales in discrete-time. Doob decomposition for supermartingales. Predictable representation. Discrete-time financial modes: Arbitrage, complete and incomplete markets. Self-financing property, value and gain processes. Valuation of contingent claims. Binomial model: Model specifications, Perfect hedging.
Review of probability tools for discrete financial analysis; Conditional probabilities/expectations. Filtrations, adapted and predictable processes. Martingales, submartingales and supermartingales in discrete-time. Doob decomposition for supermartingales. Predictable representation. Discrete-time financial modes: Arbitrage, complete and incomplete markets. Self-financing property, value and gain processes. Valuation of contingent claims. Binomial model: Model specifications, Perfect hedging.
