easy · Quantitative Finance stochastic
The 'Market Price of Risk' θ is used to transform the Brownian motion between measures.
How is it defined for a stock with drift μ, volatility σ, and risk-free rate r?
- θ = (σ)/(μ - r)
- θ = (μ - r)/(σ)
- Θ = μ - r
- θ = (r - μ)/(σ)
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