Derivatives and Duality
Peter Carr (New York University and Morgan Stanley, USA)

Friday June 6, 09:30-10:30 | session I10 | Plenary session | room Aud NBB

Is a derivative a security or a slope? We show that with the right choice of time direction and price deflator the delta of a derivative security is driftless. As a result, one can derive the arbitrage-free value of a derivative security by specifying the driftless dynamics of the derivative's delta. We illustrate this dual approach to derivatives pricing in a diffusion setting by valuing equity as a call option written on a firm's assets.