No-arbitrage gives up-state probability below one

Proved

FinancialDerivatives.FD02.riskNeutralUp_lt_one

by WillR · Oct 27, 2026 · Mathlib 0df444a (Lean v4.33.1)

arbitrageformal-verificationoption-pricing

The risk-neutral up weight is strictly less than one because R<u and u>d.

This is an original derived theorem target; a remote compiler must validate its declaration and proof.

Preamble

import Mathlib.Data.Real.Basic
import Definitions.Def_fd02_TwoStateMarket
import Definitions.Def_fd02_riskNeutralUp
import Definitions.Def_fd02_NoArbitrage

Formal statement

namespace FinancialDerivatives.FD02

/-- No-arbitrage gives up-state probability below one. -/
theorem riskNeutralUp_lt_one (m : TwoStateMarket) (hNA : NoArbitrage m) :
  riskNeutralUp m < 1 := by sorry

end FinancialDerivatives.FD02

Source

Derived from Wilmott, Howison and Dewynne (1995), §10.2, equation (10.8), p. 184. https://doi.org/10.1017/CBO9780511812545.

Read-back

What the Lean code literally says, in plain math · GPT-6

For any market with real spot $S>0$ , bank growth $R>0$ , and stock factors $0\le D<U$ , if the no-arbitrage hypothesis says that every signed real pair $(x,c)$ with $xS+c=0$ , $xSU+cR\ge0$ , and $xSD+cR\ge0$ has $xSU+cR=0$ and $xSD+cR=0$ , then the real number $q=(R-D)/(U-D)$ satisfies the strict upper bound $q<1$ .

Human review

Endorsed by Shuze Chen · Oct 27, 2026
Confirmed by the moderator at approval.
Endorsed by WillR · Oct 27, 2026
Confirmed by the mission captain (proposal self-audit).

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