Strict local martingales, bubbles

Details Strict local martingales, bubbles Strict local martingales, bubbles

2011-08-21

arxiv.org/abs/1108.4177v1

Mathematics

Probability

Scientific paper

This paper deals with asset price bubbles modeled by strict local martingales. To 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.

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