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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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Presentation on theme: "8.3.4 Probabilistic Characterization of the Put Price Presenter: Chih-tai,Shen Jan,05 2012 Stat,NCU."— Presentation transcript:

1 8.3.4 Probabilistic Characterization of the Put Price Presenter: Chih-tai,Shen Jan, Stat,NCU

2 Outline Theorem Corollary 8.3.6

3 Theorem 8.3.5

4

5

6

7 Corollary 8.3.6

8

9

10 (ii)

11 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.

12 THANKS YOUR ATTENTION


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