Risk neutral measure

2021-10-15 — 2021-08-07

Wherein a probability is selected so that discounted asset prices are rendered martingales under the chosen numeraire, and option payoffs are then valued by expectation taken under that measure

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1 References

Almost. 2011. “Semimartingales and Stochastic Integration.”
Henry-Labordère. 2017. Model-Free Hedging: A Martingale Optimal Transport Viewpoint. Chapman and Hall CRC Financial Mathematics 1.0.
Kim. 2021. “Arbitrage-Free Valuation in Nonlinear Financial Models.”
MacKenzie, and Spears. 2014. “‘The Formula That Killed Wall Street’: The Gaussian Copula and Modelling Practices in Investment Banking.” Social Studies of Science.
Madan. 2014. “Recovering Statistical Theory in the Context of Model Calibrations.” Journal of Financial Econometrics.
Privault. n.d. Notes on Stochastic Finance.
Taleb. 2018. “Election Predictions as Martingales: An Arbitrage Approach.” Quantitative Finance.