Abstract
This technical note lays out the necessary background with examples for numeraire change applications in stochastic calculus. Four examples are presented with full workings, including:a) pricing of a call option, b) pricing of an exchange/Margrabe option, c) relationship between forward rates and expected spot rates and d) use of change of numeraire in foreign markets.
Additional Information
| Product Type | Technical Note |
|---|---|
| Reference No. | F&A0523TEC |
| Title | Probability in Finance - II: Numeraire Change in Option Pricing: Select Applications |
| Pages | 20 |
| Published on | Jul 6, 2015 |
| Authors | Virmani, Vineet; |
| Area | Finance and Accounting (F&A) |
| Keywords | Martingales; Stochastic Calculus; Option Pricing; Numeraire Change |
| Access | For All |
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