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Annals of Finance
Published in: Annals of Finance 2/2018

02-12-2017 | Research Article

On the implied market price of risk under the stochastic numéraire

Author: Nikolai Dokuchaev

Published in: Annals of Finance | Issue 2/2018

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Abstract

This papers addresses the stock option pricing problem in a continuous time market model where there are two stochastic tradable assets, and one of them is selected as a numéraire. An equivalent martingale measure is not unique for this market, and there are non-replicable claims. Some rational choices of the equivalent martingale measures are suggested and discussed, including implied measures calculated from bond prices constructed as a risk-free investment with deterministic payoff at the terminal time. This leads to possibility to infer a implied market price of risk process from observed historical bond prices.
previous article Financial equilibrium with non-linear valuations
next article Asset market equilibrium with liquidity risk

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Appendix
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Metadata
Title
On the implied market price of risk under the stochastic numéraire
Author
Nikolai Dokuchaev
Publication date
02-12-2017
Publisher
Springer Berlin Heidelberg
Published in
Annals of Finance / Issue 2/2018
Print ISSN: 1614-2446
Electronic ISSN: 1614-2454
DOI
https://doi.org/10.1007/s10436-017-0315-y

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