Abstract
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.
Citation
Constantinos Kardaras. Dörte Kreher. Ashkan Nikeghbali. "Strict local martingales and bubbles." Ann. Appl. Probab. 25 (4) 1827 - 1867, August 2015. https://doi.org/10.1214/14-AAP1037
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