Abstract:The concept of an equivalent martingale measure is of key importance for pricing of financial derivative contracts. The goal of the paper is to apply infinitesimals in the non-standard analysis set-up to provide an elementary construction of the equivalent martingale measure built on hyperfinite binomial trees with infinitesimal time steps.
Keywords: equivalent martingale measure; option pricing; stochastic processes; non-standard analysis
DOI: DOI 10.14712/1213-7243.2015.192
AMS Subject Classification: 60H05 60J65