The martingales: theoretical and empirical characteristics

Fabrizio Erbetta () and Luca Agnello ()
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Fabrizio Erbetta: Ceris - Institute for Economic Research on Firms and Growth,Turin, Italy

CERIS Working Paper from CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY

Abstract: This paper offers an overview on the characteristics of martingales. These latter are markovian processes without underlying trend, in which the stochastic variable depends on its ultimate realisation. Some application fields are in studies relative to financial markets, and especially the derivative securities. Drawing from the theoretical and empirical literature, the main mathematical characteristics are presented. In order to transform processes with increasing or decreasing trends into martingales, the Doob-Meyer decomposition and the change of probability measure approaches can be adopted. Finally, four applications are considered with regard to the pricing of futures, call options and stocks.

JEL-codes: D81 G12 G13 (search for similar items in EconPapers)
Pages: 32 pages Keywords : Martingales, stochastic processes, calculus of probability
Date: 2001-12
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Persistent link: https://EconPapers.repec.org/RePEc:csc:cerisp:200107

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