Chapter

The Martingale Approach to Arbitrage Theory

Tomas Björk

in Arbitrage Theory in Continuous Time

Second edition

Published in print March 2004 | ISBN: 9780199271269
Published online October 2005 | e-ISBN: 9780191602849 | DOI: http://dx.doi.org/10.1093/0199271267.003.0010

Series: Oxford Finance Series

The Martingale Approach to Arbitrage Theory

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This chapter analyses a market model made up of N + 1 a priori given asset price processes S0, S1, ..., SN. Typically, the model is specified by giving the dynamics of the asset price processes under the objective probability measure P. The main problems are: Under what conditions is the market arbitrage free? Under what conditions is the market complete? These problems are addressed using the “martingale approach” to financial derivatives.

Keywords: financial derivatives; martingale approach; asset price; arbitrage pricing

Chapter.  8633 words. 

Subjects: Financial Markets

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