This paper concentrates on the primary theme of DERIVE (14.46). B. ASSUME GENERIC ABSENCE OF ARBITRAGE AND PROVE THAT ANY MARKET PRICE OF RISK… in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.
a. Derive (14.46).
b. Assume generic absence of arbitrage and prove that any market price of risk process λ generating a martingale measure must be of the form
where µ(t) is orthogonal to the rows of σ(t) for all t.