The change of probability measure for jump processes 12:10 Mon 28 May 12 :: 5.57 Ingkarni Wardli :: Mr Ahmed Hamada :: University of Adelaide
In financial derivatives pricing theory, it is very common to change the probability measure from historical measure "real world" into a Risk-Neutral measure as a development of the non arbitrage condition.
Girsanov theorem is the most known example of this technique and is used when prices randomness is modelled by Brownian motions. Other genuine candidates for modelling market randomness that have proved efficiency in recent literature are jump process, so how can a change of measure be performed for such processes?
This talk will address this question by introducing the non arbitrage condition, discussing Girsanov theorem for diffusion and jump processes and presenting a concrete example.