Chapter

Change of Numeraire

Tomas Björk

in Arbitrage Theory in Continuous Time

Published in print September 1998 | ISBN: 9780198775188
Published online November 2003 | e-ISBN: 9780191595981 | DOI: http://dx.doi.org/10.1093/0198775180.003.0019
 Change of Numeraire

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In this chapter, we present the change of numeraire technique that, in many cases, greatly simplifies the computation of option prices. This is applied to interest‐rate options and we develop a general option‐pricing formula.

Keywords: change of numeraire; forward measure; interest‐rate options; numeraire; options; pricing

Chapter.  10338 words. 

Subjects: Financial Markets

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