Questions tagged [equivalent-measure]

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Can the risk-neutral measure depend on the option type?

In an ideal Black-Scholes setting, the Risk-Neutral measure $Q$ is unique and so, obviously, does not depend on what derivative instrument we want to price. Assume some deviation from perfect markets (...
1
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1answer
66 views

We have a two LIBOR contracts, how to compare their values by change of change of numeraire

We have two LIBOR contracts: contract 1 pays $L\left(T_{1},\:T_{2}\right)-K$ at time $T_{1}$ contract 2 pays $L\left(T_{1},\:T_{2}\right)-K$ at time $T_{2}$. Now, $F_{1}$ is the par strike such that ...
1
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0answers
43 views

Replicating portfolio of an option and to find inital price

I am very new to financial math so I am not sure how to do with this question. A friend sent me this question to practice but I am unsure how to begin. I read about call option . Can that be used for ...
2
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0answers
71 views

Last step step in Girsanov's theorem proof

I consider the version of Girsanov's theorem presented in this question. Let us take the particular case that $\mathbb{F}$ is the filtration generated by standard Brownian motion $(W)_{t\in[0;T]}$ ...
2
votes
1answer
91 views

Market Price of Risk for Consumption Asset - Hull's Example 28.1

In Hull's Options, Futures, and Other Derivatives, he gives an example 28.1 as below. Consider a derivative whose price is positively related to the price of oil and depends on no other ...