Construction of Equivalent Martingale Measures with Infinitesimals

26 Pages Posted: 29 Sep 2008 Last revised: 1 Apr 2013

See all articles by Jiri Witzany

Jiri Witzany

University of Economics in Prague

Date Written: March 2013

Abstract

The concept of equivalent martingale measures is of key importance for pricing of nancial derivative contracts. The goal of the paper is to apply in nitesimals in the non-standard analysis set-up to provide an elementary construction of the equivalent martingale measure built on hyper nite binomial trees with in nitesimal time steps.

Keywords: Equivalent martingale measure, option pricing, stochastic processes

Suggested Citation

Witzany, Jiri, Construction of Equivalent Martingale Measures with Infinitesimals (March 2013). Available at SSRN: https://ssrn.com/abstract=1274962 or http://dx.doi.org/10.2139/ssrn.1274962

Jiri Witzany (Contact Author)

University of Economics in Prague ( email )

Winston Churchilla Sq. 4
Prague 3, 130 67
Czech Republic

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