- Higher-state pricing weight
- 50 %
- Lower-state pricing weight
- 50 %
- Replicating underlying units per claim
- 0.6
- Current cash component (negative = borrowing)
- -45.7143
- Model option value per underlying unit
- 14.2857
- Replication cost per underlying unit
- 14.2857
One period, two possible states, no underlying income and one borrowing/lending rate. The rate covers the whole modeled period. Exercise, funding frictions and more states require another model.
Branches are supplied expiry states. The weights price this model; they are not estimated forecasts.
| State | Claim payoff | Replicated amount |
|---|---|---|
| Higher | 30 | 30 |
| Lower | 0 | 0 |
On this page
Use a compatible state record
The current price and both terminal prices share one per-unit currency basis. Select European call or put expiry payoff. The rate field covers the whole modeled period; it is not automatically an annual rate. No underlying income is modeled.
Check the interior setup
The higher terminal price must exceed the lower, and the risk-free-grown current price must lie strictly between them. Missing prices, collapsed states and boundary/outside records are rejected rather than converted into arbitrary endpoint weights.
Reconcile the default call
Current 100, higher 130, lower 80, strike 100 and period rate 5% give higher pricing weight 50%, hedge holding 0.6 and current cash -45.714286. Both valuation routes give 14.285714. The diagram and state table show claim amounts 30 and zero matched by the replica.
Read the model quantities
The weights are pricing outputs, not observed forecasts. Fractional holdings and common-rate borrowing/lending belong to the simplified model. More states, early exercise, actual financing frictions and market execution need further inputs.