Lecture 1: Introduction to QF4102 Financial Modeling. Dr. DAI Min email@example.com , http://www.math.nus.edu.sg/~matdm/qf4102/qf4102.htm. Modern finance. Modern Portfolio Theory single-period model: H. Markowitz (1952) optimization problem
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Dr. DAI Min
where -- underlying asset price at expiry
-- strike price
European vanilla option:
At expiry the option value is
Problem:what’s the fair value of the option before expiry,