Option Valuation: The Riskless Portfolio
Interactive

Option Valuation: The Riskless Portfolio

Intuition Publishing
Updated Sep 24, 2020

The unknown drift component is an issue when attempting to price call and put options, but estimating the value using a binomial model and the concept of a riskless portfolio is a way to get around the problem. We look at this method here, and also discuss option valuation using the assumption of risk neutrality.