Change of drift in one-dimensional diffusions
Published version
Peer-reviewed
Repository URI
Repository DOI
Change log
Authors
Desmettre, Sascha
Leobacher, Gunther
Rogers, LCG
Abstract
jats:titleAbstract</jats:title>jats:pIt is generally understood that a given one-dimensional diffusion may be transformed by a Cameron–Martin–Girsanov measure change into another one-dimensional diffusion with the same volatility but a different drift. But to achieve this, we have to know that the change-of-measure local martingale that we write down is a true martingale. We provide a complete characterisation of when this happens. This enables us to discuss the absence of arbitrage in a generalised Heston model including the case where the Feller condition for the volatility process is violated.</jats:p>
Description
Funder: Johannes Kepler University Linz
Keywords
35 Commerce, Management, Tourism and Services, 3502 Banking, Finance and Investment, 4901 Applied Mathematics, 49 Mathematical Sciences, 4905 Statistics
Journal Title
Finance and Stochastics
Conference Name
Journal ISSN
0949-2984
1432-1122
1432-1122
Volume Title
25
Publisher
Springer Science and Business Media LLC