On the martingale property in stochastic volatility models based on time-homogeneous diffusions

Carole Bernard, Zhenyu Cui and Don McLeish

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Abstract: Lions and Musiela (2007) give sufficient conditions to verify when a stochastic exponential of a continuous local martingale is a martingale or a uniformly integrable martingale. Blei and Engelbert (2009) and Mijatovi\'c and Urusov (2012c) give necessary and sufficient conditions in the case of perfect correlation (\rho=1). For financial applications, such as checking the martingale property of the stock price process in correlated stochastic volatility models, we extend their work to the arbitrary correlation case (-1

Date: 2013-09, Revised 2014-07
New Economics Papers: this item is included in nep-ets
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