Difference between revisions of "Consistent pricing process"

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Latest revision as of 04:44, 5 May 2014

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A consistent pricing process (CPP) is any representation of (frictionless) "prices" of assets in a market. It is a stochastic process in a filtered probability space such that at time the component can be thought of as a price for the asset.

Mathematically, a CPP in a market with d-assets is an adapted process in if Z is a martingale with respect to the physical probability measure , and if at all times such that is the solvency cone for the market at time .[1][2]

The CPP plays the role of an equivalent martingale measure in markets with transaction costs.[3] In particular, there exists a 1-to-1 correspondence between the CPP and the EMM .{{ safesubst:#invoke:Unsubst||date=__DATE__ |$B= {{#invoke:Category handler|main}}{{#invoke:Category handler|main}}[citation needed] }}

References

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