Strict local martingales and bubbles
Kardaras, C.
, Kreher, D. & Nikeghbali, A.
(2015).
Strict local martingales and bubbles.
Annals of Applied Probability,
25(4), 1827-1867.
https://doi.org/10.1214/14-AAP1037
, Kreher, D. & Nikeghbali, A.
(2015).
Strict local martingales and bubbles.
Annals of Applied Probability,
25(4), 1827-1867.
https://doi.org/10.1214/14-AAP1037
This paper deals with asset price bubbles modeled by strict local martingales. With any strict local martingale, one can associate a new measure, which is studied in detail in the first part of the paper. In the second part, we determine the “default term” apparent in risk-neutral option prices if the underlying stock exhibits a bubble modeled by a strict local martingale. Results for certain path dependent options and last passage time formulas are given.