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Strict local martingales and bubbles

Kardaras, Constantinos, Kreher, Dörte and Nikeghbali, Ashkan (2015) Strict local martingales and bubbles. Annals of Applied Probability, 25 (4). pp. 1827-1867. ISSN 1050-5164

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Identification Number: 10.1214/14-AAP1037

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.

Item Type: Article
Official URL: http://www.imstat.org/aap/
Additional Information: © 2015 Institute of Mathematical Statistics
Divisions: Statistics
Subjects: H Social Sciences > HA Statistics
Sets: Departments > Statistics
Date Deposited: 14 Jan 2016 10:58
Last Modified: 20 Sep 2019 02:03
URI: http://eprints.lse.ac.uk/id/eprint/64967

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