4.2.3 Risk-Neutral Measure
- 1. Geometric Brownian Motion. Consider an economy consisting of a risk-free asset and a stock price (risky asset). At time
, the risk-free asset 
and the stock price 
have the following diffusion processes
where
is the risk-free rate, 
is the stock price drift rate, 
is the stock price volatility(which are all time dependent) and 
is a 
-standard Wiener process on the probability space 
.From the following discounted stock price process
show, using Girsanov's theorem, ...
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