CFA Lvl 2 Derivatives. Risk Neutral, No arbitrage

Hi there!

They are different models:

1. Binomial model – Uses up and down risk-adjusted probabilities
Up probability = 1+Rf-D/U-D

2. When you say the “no-arbitrage,” model I’m assuming you mean the European Put-Call Parity equation from which you could derive the price of a call or a put.

C0 + PV(Bond)=P0 + Long Stock

3. Expectation approach – It is the Black-Scholes-Merton Model

Yes, they are different models and the vignettes will generally tell you which model to use to calculate the value of the call or put.