The Martingale Theory of Bubbles: Implications for the Valuation of Derivatives and Detecting Bubbles

19 Pages Posted: 10 May 2010

See all articles by Robert A. Jarrow

Robert A. Jarrow

Cornell University - Samuel Curtis Johnson Graduate School of Management

Philip Protter

Cornell University

Date Written: May 10, 2010

Abstract

The martingale theory of bubbles studies the existence and characterization of asset price bubbles in continuous time and continuous trading economies under both the no arbitrage (no free lunch vanishing risk) and no dominance hypotheses. We review this theory, with an emphasis on understanding its implications for the valuation of derivatives and detecting asset price bubbles.

Suggested Citation

Jarrow, Robert A. and Protter, Philip, The Martingale Theory of Bubbles: Implications for the Valuation of Derivatives and Detecting Bubbles (May 10, 2010). Johnson School Research Paper Series No. 25-2010, Available at SSRN: https://ssrn.com/abstract=1604175 or http://dx.doi.org/10.2139/ssrn.1604175

Robert A. Jarrow (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Department of Finance
Ithaca, NY 14853
United States
607-255-4729 (Phone)
607-254-4590 (Fax)

Philip Protter

Cornell University ( email )

Ithaca, NY 14853
United States

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