Description
Divide state price by discount factor and multiply state price by state payoff for present-value contribution.
A financial model connects supplied rates, discount factors, cashflows or prices under a particular convention. A local identity or residual is not a complete valuation, an observed market relationship or a promise of future returns.
Divide state price by discount factor and multiply state price by state payoff for present-value contribution.
When to use this tool
Use Risk Neutral One State Price Term when you need one transparent financial-model term.
How to use the tool and how it works
- Enter statePrice, discountFactor, statePayoff. Use the units and conventions below.
- Run the tool. Correct any format, range, or cross-field input error before interpreting the output.
- Read riskNeutralProbability, presentValueContribution. Use the output convention below.
Require positive discount factor and statePrice between zero and that factor. Divide state price by discount factor and multiply state price by state payoff for present-value contribution.1
| Input field | Meaning and units | Accepted input |
|---|---|---|
| statePrice | State Price | Required. Finite number; minimum 0. |
| discountFactor | Discount Factor | Required. Finite number; strictly above 0. |
| statePayoff | State Payoff | Required. Finite number. |
| Output field | Interpretation | Returned shape |
|---|---|---|
| riskNeutralProbability | Risk Neutral Probability | Required. Finite number. |
| presentValueContribution | Present Value Contribution | Required. Finite number. |
{
"input": {
"statePrice": 0.4,
"discountFactor": 0.8,
"statePayoff": 100
},
"output": {
"riskNeutralProbability": 0.5,
"presentValueContribution": 40
}
}Limitations and assumptions
- This is one state term. The model does not validate a complete state-price system, no-arbitrage conditions, or probabilities across all states.
- Inputs must satisfy both the field types and the cross-field conditions above. Invalid input causes an error; a successful false flag or documented placeholder is a different result.
- Numeric calculations use binary floating point unless exact decimal-integer arithmetic is explicitly stated. No hidden measurement tolerance or decimal rounding is added; nonfinite or out-of-contract results are rejected. Numeric signed-zero results are exported as zero.
Alternative or Complementary methods
Use a complete model matching the instrument, cashflows and market conventions. Review compounding, timing, currency, uncertainty and omitted costs before using a local estimate in a financial decision.
References
Similar or alternative tools
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- Option Putcall Parity Residual
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