Applications of change of numéraire for option pricing

The word numéraire refers to the unit of measurement used to value a portfolio of assets. Thechange of numéraire technique involves converting from one measurement to another. Theforeign exchange markets are natural settings for interpreting this technique (but are by no meansthe only examples).This dissertation includes elementary facts about the change of numeraire technique. It alsodiscusses the mathematical soundness of the technique in the abstract setting of Delbaen andSchachermayer’s Mathematics of Arbitrage. The technique is then applied to financial pricingproblems. The right choice of numéraire could be an elegant approach to solving a pricing problemor could simplify computation and modelling.