Let Y be a random variable with E[Y] < (a) Show that the Mt defined by
Question:
E[Y] < ∞
(a) Show that the Mt defined by
Mt = E[Y| It]
is a martingale.
(b) Does this mean that every conditional expectation is a martingale, given the increasing sequence of information sets {I0 ⊆ · · · ⊆ It ⊆ It+1 ⊆ · · ·}.
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a If M t EY I t then by the law of iterated expecta...View the full answer
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Related Book For
An Introduction to the Mathematics of Financial Derivatives
ISBN: 978-0123846822
3rd edition
Authors: Ali Hirsa, Salih N. Neftci
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