by Cédric Join, Michel Fliess
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Suggested foundations for options and derivatives pricing and financial time series. Specialist prerequisites vary by paper.
Build replication and risk-neutral probabilities in a tractable model.
Distinguish pricing probabilities from physical forecasts.
Check whether a relationship can be estimated consistently over time.
Read the fitted relationship and its residuals.
Connect the pricing equation, closed-form value and implied volatility.
Study long-run relationships without confusing them with correlation.
Check the assumptions behind reported estimates.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.