The variable S is an investment asset providing income at rate q measured in currency A. It
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The variable S is an investment asset providing income at rate q measured in currency A. It follows the process
dS = μSS dt + σSS dz
in the real world. Defining new variables as necessary, give the process followed by , and the corresponding market price of risk, in
(a) A world that is the traditional risk-neutral world for currency A.
(b) A world that is the traditional risk-neutral world for currency B.
(c) A world defined by a numeraire equal to a zero-coupon currency A bond maturing at time T.
(d) A world defined by a numeraire equal to a zero coupon currency B bond maturing at time T.
CouponA coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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