[Verse 1] Sarah holds a bond that pays three hundred every June But the market price keeps shifting with the economic tune She wonders what it's really worth, needs a pricing scheme So she builds it piece by piece like an architect's dream [Chorus] Replicate, duplicate, break it down to parts Combine the basic building blocks, that's where pricing starts Cash flows line up perfectly, synthetic equals real Replication strategy reveals what fair value should feel [Verse 2] Take a stock plus put protection, subtract a calling right Suddenly you've built a bond from securities in sight Every payment, every coupon, matched by your design When the pieces pay the same, the prices must align [Chorus] Replicate, duplicate, break it down to parts Combine the basic building blocks, that's where pricing starts Cash flows line up perfectly, synthetic equals real Replication strategy reveals what fair value should feel [Bridge] No arbitrage principle keeps the market tight If two portfolios pay the same, their prices unite Complex derivatives seem mysterious and grand But strip them to their payments and you'll understand [Verse 3] Forwards can be decomposed to borrowing plus stock Options build from various combinations that unlock The secret to fair pricing lies in this simple truth Match the cash flows perfectly and the math gives proof [Chorus] Replicate, duplicate, break it down to parts Combine the basic building blocks, that's where pricing starts Cash flows line up perfectly, synthetic equals real Replication strategy reveals what fair value should feel [Outro] Every complex instrument has a simpler twin Built from basic securities, let the pricing begin
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