Single jump processes and strict local martingales

DOI10.1016/J.SPA.2015.09.003zbMATH Open1329.60113arXiv1510.03192OpenAlexW2178165729MaRDI QIDQ901294FDOQ901294

Authors: Martin Herdegen, Sebastian Herrmann 

Publication date: 23 December 2015

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: Many results in stochastic analysis and mathematical finance involve local martingales. However, specific examples of strict local martingales are rare and analytically often rather unhandy. We study local martingales that follow a given deterministic function up to a random time $gamma$ at which they jump and stay constant afterwards. The (local) martingale properties of these single jump local martingales are characterised in terms of conditions on the input parameters. This classification allows an easy construction of strict local martingales, uniformly integrable martingales that are not in $H^1$, etc. As an application, we provide a construction of a (uniformly integrable) martingale $M$ and a bounded (deterministic) integrand $H$ such that the stochastic integral $$ is a strict local martingale.

Full work available at URL: https://arxiv.org/abs/1510.03192

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zbMATH Keywords

stochastic integralsstrict local martingalessingle jump processes

Mathematics Subject Classification ID

Generalizations of martingales (60G48) Martingales with continuous parameter (60G44) Stochastic integrals (60H05)

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Cited In (13)

• On possible relations between an increasing process and its compensator in the non-integrable case
• Strict local martingales with jumps
• Strict local martingales and optimal investment in a Black–Scholes model with a bubble
• Single jump filtrations and local martingales
• Optimal Novikov-type criteria for local martingales with jumps
• A nonuniformly integrable martingale bubble with a crash
• Analysis of continuous strict local martingales via \(h\)-transforms
• The joint law of a max-continuous local submartingale and its maximum
• Simple examples of pure-jump strict local martingales
• Strict local martingales: examples
• Piecewise constant martingales and lazy clocks
• Single jump filtrations: preservation of the local martingale property with respect to the filtration generated by the local martingale
• Inefficient bubbles and efficient drawdowns in financial markets

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