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 ⊆ · · ·}.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 70% (10 reviews)
a If M t EY I t then by the law of iterated expecta...View the full answer
Answered By
PALASH JHANWAR
I am a Chartered Accountant with AIR 45 in CA - IPCC. I am a Merit Holder ( B.Com ). The following is my educational details.
PLEASE ACCESS MY RESUME FROM THE FOLLOWING LINK: https://drive.google.com/file/d/1hYR1uch-ff6MRC_cDB07K6VqY9kQ3SFL/view?usp=sharing
3.80+
3+ Reviews
10+ Question Solved
Related Book For
An Introduction to the Mathematics of Financial Derivatives
ISBN: 978-0123846822
3rd edition
Authors: Ali Hirsa, Salih N. Neftci
Question Posted:
Students also viewed these Finance questions
-
Let Y be a random variable with E[Y] < (a) Show that the Mt defined by Mt = E[Y|It] Is a martingale. (b) Does this mean that every conditional expection is a martingale given the increasing sequence...
-
Let Y be a random variable defined by where W is a standard Wiener process. Compute E(Y) and E(Y2). (9.137)
-
We consider the random process St, which plays a fundamental role in Black-Scholes analysis: where Wt is a Wiener process with W0 = 0, is a "trend" factor, and (Wt Ws) N (0, (t s)) which says...
-
Maynard Appliances is holding a Fifty- Fifty Sale. Major appliances may be purchased for nothing down and no interest to pay if the customer pays 50% of the purchase price in six months and the...
-
Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ? Explain.
-
Kijijo Auctions runs an online auction company. Its end- of- year financial statements indicate the following results. Calculate the companys net profit margin expressed as a percent (to one decimal...
-
Complete the second half of the proof of the "forward price formula with carrying cost". To construct the arbitrage, go long one unit of a forward and short one unit spot. To execute the short, it is...
-
The Delta Group is a management consulting firm specializing in the health care industry. A team is being formed to study possible new markets, and a linear programming model has been developed for...
-
Sierra Company manufactures soccer balls in two sequential processes: Cutting and Stitching. All direct materials enter production at the beginning of the cutting process. The following information...
-
(a) List the SI units of length, mass, time, electric current, temperature, and amount of substance; write the abbreviation for each. (b) Write the units and symbols for frequency, force, pressure,...
-
Generate a random walk using a binomial process with p = 0.5. Assume that at each step the random walk takes on values 1 (with probability p), and 1 (with probability 1 p). Perform 1000 random walk...
-
Consider the random variable: where each Bi is obtained as a result of the toss of a fair coin: We let n = 4 and consider X4. (a) Calculate the E[X4| I1] ,E[X4| I2] , E[X4| I4]. (b) Let Zi = E[X4|...
-
Determine whether there exists a function (x, y) with the given partial derivatives. Explain your reasoning. If such a function exists, give an example. fx(x, y) = 3 sin(3x 2y), f(x, y) = 2 sin(3x ...
-
1. How does business development change as the PLC progresses through its stages? 2. List the roles and responsibilities of the three different bands in the management of simultaneous life cycles. 3....
-
Does consideration have to be fair? Explain the difference between offer and invitation to treat . Give an example of each. What must be proven in every case order to have a contract set aside for...
-
Hypo 3: A small household staffing firm has recently realized it needs to change its marketing. The firm is owned by Anthony, a 60-year-old who has done this work for many years but has recently...
-
Publicity -How much publicity has the case received? -What are news outlets focusing on? -How is the issue being framed in the media as opposed to what might be the real legal issue? -Is publicity on...
-
Question it is the bankruptcy question ASKED: how much money is left for unsecured debt. Also, list the debt that is unsecured one by one Peter was the child of German immigrants, and at one time had...
-
Sketch the ion arrangement of the (110) plane of ZnS (with the zincblende structure) and compare this arrangement to that on the (110) plane of CaF 2 (with the fluorite structure). Compare the planar...
-
Read Case Study Google: Dont Be Evil Unless and answer the following: Why do you think Google was adamant about not wanting to supply information requested by the government concerning the Child...
-
We consider the random process St, which plays a fundamental role in BIack-Scholes analyses: St = S0e[1+Wt] Where Wt is a Wiener process with W0 = 0, is a trend factor, and (Wt Ws) N(0, (I s)),...
-
Show that as n ? ? (a) 1(1 - ).-(1 (b) (1 - )" - . (e) (1-) -1
-
Let the random variable Xn have a binomial distribution: Where each Bi is independent and i distributed according to We can look at X n as the cumulated sum of a series of events that occur over...
-
Part 1 - Rent Calculation Assume the following for a floor in a multistory office building: total usable area: 62,500 sq ft; Total common area: 4,100 sq ft; total rentable area: 66,600 sq ft; Tenant...
-
14. Consider the following information on three stocks: Probability of State Rate of Return if State Occurs State of Economy of Economy Stock A Stock B Stock C Boom 0.45 0.55 0.35 0.65 Normal 0.50...
-
B2 ) Consider the following information on a portfolio of three stocks: State of Economy Probability of State of Economy Boom .15 Stock A Rate of Return .05 Stock B. Rate of Return 21 Stock C Rate of...
Study smarter with the SolutionInn App