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Generalized Filtrations and Its Application to Binomial Asset Pricing Models

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  • Takanori Adachi
  • Katsushi Nakajima
  • Yoshihiro Ryu

Abstract

We introduce generalized filtration with which we can represent situations such as some agents forget information at some specific time. The filtration is defined as a functor to a category Prob whose objects are all probability spaces and whose arrows correspond to measurable functions satisfying an absolutely continuous requirement [Adachi and Ryu, 2019]. As an application of a generalized filtration, we develop a binomial asset pricing model, and investigate the valuations of financial claims along this type of non-standard filtrations.

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  • Takanori Adachi & Katsushi Nakajima & Yoshihiro Ryu, 2020. "Generalized Filtrations and Its Application to Binomial Asset Pricing Models," Papers 2011.08531, arXiv.org.
    • Handle: RePEc:arx:papers:2011.08531
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    File URL: http://arxiv.org/pdf/2011.08531
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