Shifting martingale measures and the birth of a bubble as a submartingale (Q468413): Difference between revisions
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Revision as of 00:23, 5 March 2024
scientific article
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English | Shifting martingale measures and the birth of a bubble as a submartingale |
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Shifting martingale measures and the birth of a bubble as a submartingale (English)
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7 November 2014
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The authors of this paper are interested in the formation and perception of bubbles in financial markets. In particular, they construct and study a flow in the space of martingale measures and use it to describe the ``birth'' of a financial bubble. They consider two martingale measures \(Q\) and \(R\), where the wealth process of a financial asset is a uniformly integrable martingale under \(Q\) but not under \(R\). Then, the flow moves from \(Q\) and \(R\) via convex combinations and this allows one to observe the ``birth'' of a financial bubble, when the wealth process stops being a uniformly integrable martingale. The construction and behavior of this flow are illustrated in two examples.
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bubbles
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strict local martingales
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submartingales
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equivalent martingale measures
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