Timeline for Why Drifts are not in the Black Scholes Formula
Current License: CC BY-SA 3.0
5 events
| when toggle format | what | by | license | comment | |
|---|---|---|---|---|---|
| Apr 17, 2022 at 10:50 | comment | added | Maximilian Janisch | This hits the quintessence but it is formulated in a misleading way: $\tilde W$ is a Brownian motion with respect to a different probability measure than $W$. | |
| Apr 22, 2014 at 22:56 | comment | added | fbt | @AndrewDabrowski: Check out the Girsanov Theorem. It lets you transform one brownian motion into another. | |
| Nov 5, 2013 at 14:12 | comment | added | Andrew Dabrowski | I'm puzzled by something: unless $\mu=r$ the mean of ${(μ−r)\over σ}dt+dW$ is not 0, so how can it be equivalent to anything with mean 0? | |
| Jun 19, 2013 at 0:45 | comment | added | Matt Wolf | Did you mean to say that in a world where we can perfectly hedge the risk premium has to be equal to the risk free rate? I am asking because the asset clearly has volatility even after changing measure to a risk neutral probability measure. In fact volatility is identical before and after. | |
| Jun 18, 2013 at 13:07 | history | answered | SpeedBoots | CC BY-SA 3.0 |