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Strict Local Martingales Via Filtration Enlargement

Author

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  • ADITI DANDAPANI

    (Institut für Mathematik, Universität Zürich, Winterthurerstrasse 190, CH-8057 Zürich, Switzerland)

  • PHILIP PROTTER

    (Statistics Department, Columbia University, New York, NY 10027, USA)

Abstract

A strict local martingale is a local martingale that is not a martingale. We investigate how such a process might arise from a true martingale as a result of an enlargement of the filtration and a change of measure. We study and implement a particular type of enlargement, initial expansion of filtration, for stochastic volatility models with and without jumps and provide sufficient conditions in each of these cases such that initial expansion can create a strict local martingale. We provide examples of initial enlargement that effect this change.

Suggested Citation

  • Aditi Dandapani & Philip Protter, 2019. "Strict Local Martingales Via Filtration Enlargement," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 23(01), pages 1-28, December.
    • Handle: RePEc:wsi:ijtafx:v:23:y:2019:i:01:n:s0219024920500016
    DOI: 10.1142/S0219024920500016
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    References listed on IDEAS

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