Risk-Neutral Probabilities Explained
Risk-Neutral Probabilities Explained ArXiv ID: ssrn-1395390 “View on arXiv” Authors: Unknown Abstract All too often, the concept of risk-neutral probabilities in mathematical finance is poorly explained, and misleading statements are made. The aim of this paper Keywords: risk-neutral probabilities, martingales, stochastic calculus, derivatives pricing, Quantitative Finance Complexity vs Empirical Score Math Complexity: 7.0/10 Empirical Rigor: 2.0/10 Quadrant: Lab Rats Why: The paper focuses on theoretical foundations, including continuous-time stochastic processes like geometric Brownian motion and martingales, but lacks any empirical backtesting, data, or implementation details. flowchart TD A["Research Goal: Explain Risk-Neutral Probabilities clearly"] --> B["Methodology: Critical Review of Stochastic Calculus"] B --> C["Input: Misleading Statements in Texts"] C --> D["Computational Process: Martingale Measure Derivation"] B --> E["Input: Derivatives Pricing Models"] E --> D D --> F["Key Finding: Q-Measure vs. P-Measure"] D --> G["Key Finding: No-Arbitrage Pricing Framework"]