Search Results
| Search type | Search syntax |
|---|---|
| Tags | [tag] |
| Exact | "words here" |
| Author |
user:1234 user:me (yours) |
| Score |
score:3 (3+) score:0 (none) |
| Answers |
answers:3 (3+) answers:0 (none) isaccepted:yes hasaccepted:no inquestion:1234 |
| Views | views:250 |
| Code | code:"if (foo != bar)" |
| Sections |
title:apples body:"apples oranges" |
| URL | url:"*.example.com" |
| Saves | in:saves |
| Status |
closed:yes duplicate:no migrated:no wiki:no |
| Types |
is:question is:answer |
| Exclude |
-[tag] -apples |
| For more details on advanced search visit our help page | |
Results tagged with risk-neutral-measure
Search options not deleted
user 3511
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.
6
votes
1
answer
1k
views
How is Radon-Nikodym derivative different from the likelihood ratio?
I see that the Radon-Nikodym derivative is the ratio of probability measures, $dP/dQ$. How is this different, in general, from a likelihood ratio of two continuous distributions? I understand the RN-d …
- 671
8
votes
1
answer
3k
views
What is a Brownian motion "under the risk-neutral measure"?
I understand that the risk-neutral measure associated with the money-market Numeraire is one under which the discounted price (acc. to the risk-free rate) of any asset is a martingale.
Brownian motion …
- 671
1
vote
1
answer
635
views
How do we derive the Radon-Nikodym derivative for T-forward measures?
Let $Q^{T_e}$ denote the $T_e$-forward measure and let $Q^{T_p}$ denote the $T_p$-forward measure.
I have seen the following Radon-Nikodym derivative being used in derivations.
For $0 \le t \le T_p$, …
- 671
2
votes
1
answer
98
views
How to compute the Present Value of this path-dependent option?
I have an option whose payoff depends on its value at two times $T_1$ and $T_2$ as follows.
$$V(t) = \mathbb{E}^{Q}[\mathbb{1}_{S(T_1)>B} (S(T_2)-K)^+)],$$
where the stock price follows the GBM dynami …
- 671
1
vote
0
answers
175
views
How to use Girsanov theorem for complicated RN derivatives?
Let $W_t$ be a Brownian motion under probability measure $\mathbb{P}$. Let $X_t$ be defined as follows.
$$\mathrm{d}X_t = a \mathrm{d}t + 2\sqrt{ X_t} \mathrm{d}W_t.$$
Also define: $$L_t = \exp\left(- …
- 671
8
votes
3
answers
2k
views
How do we determine the "correct measure"?
Frequently I come across the statement that the "correct measure" for a product is this-or-that measure. For example,
Eurodollar Futures or Stock returns - Risk neutral measure
Libor forward rate - …
- 671