2011/08/31 by Constantinos Kardaras, Dörte Kreher, Ashkan Nikeghbali · 1 citation
Mathematics · #math.PR
paper · pdf · doi:10.1214/14-aap1037
published as Annals of Applied Probability 2015, Vol. 25, No. 4, 1827-1867 · Published at http://dx.doi.org/10.1214/14-AAP1037 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)
arxiv created 2015/06/19 · arxiv updated 2016/08/13
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.