Questions tagged [stochastic-drift]
The stochastic-drift tag has no usage guidance.
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Bessel Correction and Geometric Brownian Motion
Does it make sense to use bessel's correction for standard deviation and variance when fitting the drift and volatility parameters of geometric brownian motion to historical return data for a security....
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Mean instantaneous drift from option prices
I'm going through the paper "Pricing European Options in Realistic Markets" by Schaden (2002) as its formulation for instantaneous mean drift seemed really interesting.
On page 14, the ...
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Risk Neutral Valuation, Drifts and Calibration
Lets consider a pricing model like Vasicek.
Apparently, if you calibrate a derivatives pricing model to market prices this gives you risk neutral parameters. Its not clear to me as to WHY this will ...
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Can a Process with a Stochastic Drift be a Martingale?
I have repeatedly come across the statement that "a process with a drift cannot be a martingale". Is this true also for stochastic drifts?
Suppose I have a process with a stochastic drift:
$$...
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