medium · Quantitative Finance
In the derivation of the Black-Scholes model, Girsanov's theorem is the rigorous tool that allows us to replace E^Pleft[e^-rT dots right] with E^Qleft[e^-rT dots right].
In this context, what is the 'market price of risk' for the risk-free bank account itself?
- R/σ
- 1
- 0
- Undefined, because risk-free assets have σ = 0.
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