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Financial Engineering and Analytics

If two portfolios produce the same payoff in every modeled state, no-arbitrage gives them the same price under the model assumptions.

Your starting point

Banking and Future Finance

Can you price a derivative by building its payoff from simpler assets? In a one-period binomial model, choose shares and cash to match the derivative payoff in both states. The stock and cash positions form a replicating portfolio under frictionless borrowing and trading assumptions.

Replicate a derivative payoffFoundation · Quick, Deep, ApplyPrice a call in a two-state treeAdvanced · Quick, Deep, ApplyPrerequisite · Build a balance sheet

Use the linked prerequisite and related topics to build your path.