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Arbitrage Theory in Continuous Time$
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Arbitrage Theory in Continuous Time

Tomas Björk

Print publication date: 1998

Print ISBN-13: 9780198775188

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198775180.001.0001

Change of Numeraire

Chapter:
(p. 274 ) 19 Change of Numeraire
Source:
Arbitrage Theory in Continuous Time
Author(s):

Tomas Björk (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0198775180.003.0019

In this chapter, we present the change of numeraire technique that, in many cases, greatly simplifies the computation of option prices. This is applied to interest‐rate options and we develop a general option‐pricing formula.

Keywords:   change of numeraire, forward measure, interest‐rate options, numeraire, options, pricing

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