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Results tagged with risk-neutral-measure
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user 26887
A risk-neutral measure is a probability measure that yields an expected present value (discounted at the risk-free rate) which is equal to the current market price. The risk-neutral measure is also called an equivalent martingale measure.
14
votes
6
answers
10k
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Risk-neutral vs. physical measures: Real-world example
Taken from a mid-July Wall Street Journal news story:
Surging optimism in financial markets hasn’t translated into a big pickup in economic growth. Stocks hit records Friday and big U.S. banks repor …
- 621
2
votes
1
answer
951
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Change-of-measure: Dynamics of $\log(S_t)$ with $S_t$ as numeraire [duplicate]
Let $S$ be a GBM with dynamics $dS_t/S_t=rdt+\sigma dW_t$. We want to compute the following expected value:
\begin{align*}
\mathbb{E}(S_T\log(S_T)).
\end{align*}
Using a change of measure we can write …
- 621