Shifting martingale measures and the birth of a bubble as a submartingale

Francesca Biagini (), Hans Föllmer () and Sorin Nedelcu ()

Finance and Stochastics, 2014, vol. 18, issue 2, 297-326

Abstract: In an incomplete financial market model, we study a flow in the space of equivalent martingale measures and the corresponding shifting perception of the fundamental value of a given asset. This allows us to capture the birth of a perceived bubble and to describe it as an initial submartingale which then turns into a supermartingale before it falls back to its initial value zero. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Bubbles; Strict local martingales; Submartingales; Equivalent martingale measures; Stochastic volatility; 91G99; 60G07; 60G44; C60; C65; G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (17)

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DOI: 10.1007/s00780-013-0221-8

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