A note on the forward measure

For a Markov process $x_t$, the forward measure $P^T$ over the time interval $[0,T]$ is defined by the Radon-Nikodym derivative $dP^T/dP = M\exp(-\int_0^Tc(x_s)ds)$, where $c$ is a given non-negative function and $M$ is the normalizing constant. In this paper, the law of $x_t$ under the forward measure is identified when $x_t$ is a diffusion process or, more generally, a continuous-path Markov process.

MoreLess

Year of publication:	1997-11-13
Authors:	Davis, Mark
Published in:	Finance and Stochastics. - Springer. - Vol. 2.1997, 1, p. 19-28
Publisher:	Springer
Subject:	Risk-neutral measure \| Radon-Nikodym derivative \| option pricing

More details

Extent:	application/pdf application/postscript
Type of publication:	Article
Notes:	received: October 1996; final version received: July 1997
Classification:	G13 - Contingent Pricing; Futures Pricing ; C63 - Computational Techniques
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005759649