Construction of Equivalent Martingale Measures with Infinitesimals
26 Pages Posted: 29 Sep 2008 Last revised: 1 Apr 2013
Date Written: March 2013
The concept of equivalent martingale measures is of key importance for pricing of nancial derivative contracts. The goal of the paper is to apply innitesimals in the non-standard analysis set-up to provide an elementary construction of the equivalent martingale measure built on hypernite binomial trees with innitesimal time steps.
Keywords: Equivalent martingale measure, option pricing, stochastic processes
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