A change of measure formula for recursive conditional expectations
Probability
2022-07-13 v3 Mathematical Finance
Pricing of Securities
Abstract
In this paper, we derive a representation for the value process associated to the solutions of FBSDEs in a jump-diffusion setting under multiple probability measures. Motivated by concrete financial problems, the latter representations are then applied to devise a generalization of the change of num\'eraire technique allowing to obtain recursive pricing formulas in the presence of multiple interest rates and collateralization.
Keywords
Cite
@article{arxiv.2111.08359,
title = {A change of measure formula for recursive conditional expectations},
author = {Luca Di Persio and Alessandro Gnoatto and Marco Patacca},
journal= {arXiv preprint arXiv:2111.08359},
year = {2022}
}
Comments
25 pages. Minor typos removed