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8.3.4 Probabilistic Characterization of the Put Price Presenter: Chih-tai,Shen Jan,05 2012 Stat,NCU

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Outline Theorem 8.3.5 Corollary 8.3.6

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Theorem 8.3.5

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Corollary 8.3.6

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(ii)

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Discounted European option prices are martingales under the risk-neutral probability measure. Discounted American option prices are martingales up to the time they should be exercised. If they are not exercised when they should be, they tend downward. Since a martingale is a special case of a supermartingale, and processes that tend downward are supermartingales, discounted American option prices are supermart ingales.

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THANKS YOUR ATTENTION

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