Shifting martingale measures and the birth of a bubble as a submartingale |
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| Authors: | Francesca Biagini Hans Föllmer Sorin Nedelcu |
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| Affiliation: | 1. Department of Mathematics, Ludwig-Maximilians Universit?t, Theresienstra?e 39, 80333, Munich, Germany
2. Department of Mathematics, Humboldt-Universit?t zu Berlin, Unter den Linden 6, 10099, Berlin, Germany
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| Abstract: | In an incomplete financial market model, we study a flow in the space of equivalent martingale measures and the corresponding shifting perception of the fundamental value of a given asset. This allows us to capture the birth of a perceived bubble and to describe it as an initial submartingale which then turns into a supermartingale before it falls back to its initial value zero. |
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