Sigma-martingale

In mathematics and information theory of probability, a sigma-martingale is a semimartingale with an integral representation. Sigma-martingales were introduced by C.S. Chou and M. Emery in 1977 and 1978.^[1] In financial mathematics, sigma-martingales appear in the fundamental theorem of asset pricing as an equivalent condition to no free lunch with vanishing risk (a no-arbitrage condition).^[2]

Mathematical definition

An $ℝ^{d}$ -valued stochastic process $X = (X_{t})_{t = 0}^{T}$ is a sigma-martingale if it is a semimartingale and there exists an $ℝ^{d}$ -valued martingale M and an M-integrable predictable process $ϕ$ with values in $ℝ_{+}$ such that

X = ϕ \cdot M .

^[1]

References

↑ ^1.0 ^1.1 F. Delbaen; W. Schachermayer (1998). "The Fundamental Theorem of Asset Pricing for Unbounded Stochastic Processes" (PDF). Mathematische Annalen. 312 (2): 215–250. doi:10.1007/s002080050220. S2CID 18366067. Retrieved October 14, 2011.
↑ Delbaen, Freddy; Schachermayer, Walter. "What is... a Free Lunch?" (PDF). Notices of the AMS. 51 (5): 526–528. Retrieved October 14, 2011.

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