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3
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1answer
81 views

Change of numeraire and reference asset

Learning about change of numeraire, and came across this statement: The price of any asset divided by a reference asset (called numeraire) is a martingale (no drift) under the measure associated ...
1
vote
0answers
60 views

Value of an option to exchange an asset for another

I'm working out the examples in the paper "Changes of Numeraire, Changes of Probability Measure and Option Pricing", corollary 3. An option of exchanging asset 2 against asset 1 at time T, its time-0 ...
1
vote
2answers
148 views

Libor Market Model: numeraire change

I am currently studying the Libor forward market model, and although I get the mechanics behind the main arguments, I still do not have an intuitive idea of what's exactly the objective behind ...
0
votes
1answer
236 views

Dealing with the stock numeraire

I don't understand how to express the stock dynamics in the stock numéraire I have $dS_t/S_t = rdt + \sigma dW_t$ as usual under the money-market numéraire and I need to price options with payoffs ...
3
votes
1answer
165 views

Numéraire — couldn't understand the wiki explanation

I'm trying to understand Numéraire concept so am reading the wiki page: I couldn't understand the last formula's 2nd equation: $$ ...
1
vote
1answer
212 views

Baye's rule for conditional expectations (Proof review)

The Baye's rule for conditional expectations states $$ E^Q[X|\mathcal{F}]E^P[f|\mathcal{F}]=E^P[Xf|\mathcal{F}] $$ With $f=dQ/dP$ - thus being the Radon-Nikodyn derivative and $X$ being ...
7
votes
2answers
475 views

T-Forward Price on risk-neutral measure

i have and question concerning the T-forward price definition on the Robert J.Elliot's book : Mathematics of Financial Markets. On his chapter 9, definition 9.1.3 p.249. He give the formula without ...