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## Hot answers tagged derivation

7

I provided an answer, based on an elementary approach, to an exactly same question yesterday. However, that question has disappeared, even though I like to keep a record for what I wrote. I would suggest that people do not delete their questions as they may be helpful for others. Here, I re-post that answer. We assume that, under the risk-neutral measure,...

4

See this excellent paper by @MarkJoshi which defines/discusses the use of power numeraires. Starting from a dynamics specified under the risk-neutral measure $\mathbb{Q}$ \begin{align} &\frac{dS_t}{S_t} = (r-q) dt + \sigma dW_t^{\mathbb{Q}}\\ \iff& S_T\ \vert\ \mathcal{F}_t = S_t e^{(r-q-\frac{\sigma^2}{2})(T-t) + \sigma(W_T-W_t)} \tag{EQ.0} \...

2

Let's suppose $P$ is total annual deposits made continuously, then the change in value of total deposits $dV_t$ is (assuming no condition on additional deposits) $$dV_t= V_t r dt + P dt$$ where we assumed $r$ is constant. Solving above differential equation, we have: $$V_T = V_0 e^{rT} + \frac{P}{r} (e^{rT} -1)$$ Assuming $t_1$ is the time period at ...

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