aubreyclayton

5 ms·

1. 1.▲
   by aubreyclayton 7y ago

   So, if I knew ahead of time what your price was going to be tomorrow, I would have a clear arbitrage strategy. But that's not a fair example. The question is: what do I know at t=0 about what your price could be at t=1? A better exam
2. 2.▲
   by aubreyclayton 7y ago

   Sure. If you've studied stochastic processes like Brownian motion, check out the derivation starting with the last paragraph on p.4 of this note: https://drive.google.com/file/d/1tQj4ZGja6jKADJGiFj-dcQAirWo...
3. 3.▲
   by aubreyclayton 7y ago

   Yep! Thanks!
4. 4.▲
   by aubreyclayton 7y ago

   He is wrong in that the sentence of his that I quoted contained two statements: "when the volatility of the underlying security increases, [1] arbitrage pressures push the corresponding binary option to trade closer to 50% and [2] beco
5. 5.▲
   by aubreyclayton 7y ago

   So... I wrote this. Maybe I can clarify a little what I meant by the statement "Since Silver’s forecasts begin with probability models, it’s safe to assume they obey all the rules, including Bayes’, and would be arbitrage-free.",