Lecture
This lecture covers risk-neutral valuation in the context of European derivatives, focusing on the Black-Scholes-Merton model. It explains the concept of an auxiliary probability measure Q, Feynman-Kac formula, exponential martingales, and the Fundamental Theorem of Asset Pricing. The lecture also delves into trading strategies, market securities, and the existence of Equivalent Martingale Measures (EMMs). The discussion extends to the construction of EMMs, the First Fundamental Theorem of Asset Pricing, and examples illustrating the application of risk-neutral valuation in financial modeling.