The Fundamental Theorem of Asset Pricing
We saw in the previous chapter that the existence of a probability measure Q ~ P under which the (discounted) stock price process is a martingale is sufficient to ensure that the market model is viable; that is, it contains no arbitrage opportunities. We now address the converse: whether for every viable model one can construct an equivalent martingale measure for S, so that the price of a contingent claim can be found as an expectation relative to Q.
KeywordsAsset Price Market Model Fundamental Theorem Price Process Martingale Measure
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