Strict local martingales and bubbles
Probability
2016-08-14 v3
Abstract
This paper deals with asset price bubbles modeled by strict local martingales. With any strict local martingale, one can associate a new measure, which is studied in detail in the first part of the paper. In the second part, we determine the "default term" apparent in risk-neutral option prices if the underlying stock exhibits a bubble modeled by a strict local martingale. Results for certain path dependent options and last passage time formulas are given.
Cite
@article{arxiv.1108.4177,
title = {Strict local martingales and bubbles},
author = {Constantinos Kardaras and Dörte Kreher and Ashkan Nikeghbali},
journal= {arXiv preprint arXiv:1108.4177},
year = {2016}
}
Comments
Published at http://dx.doi.org/10.1214/14-AAP1037 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)