The Martingale Approach

Carl Chiarella*, Xue Zhong He, Christina Sklibosios Nikitopoulos

*Corresponding author for this work

Research output: Chapter in Book or Report/Conference proceedingChapterpeer-review


The martingale approach is widely used in the literature on contingent claim analysis. Following the definition of a martingale process, we give some examples, including the Wiener process, stochastic integral, and exponential martingale. We then present the Girsanov’s theorem on a change of measure. As an application, we derive the Black–Scholes formula under risk neutral measure. A brief discussion on the pricing kernel representation and the Feynman–Kac formula is also included.

Original languageEnglish
Title of host publicationDynamic Modeling and Econometrics in Economics and Finance
PublisherSpringer Science and Business Media Deutschland GmbH
Number of pages33
Publication statusPublished - 2015
Externally publishedYes

Publication series

NameDynamic Modeling and Econometrics in Economics and Finance
ISSN (Print)1566-0419
ISSN (Electronic)2363-8370


  • Option Price
  • Quadratic Variation
  • Stochastic Differential Equation
  • Stock Price
  • Wiener Process


Dive into the research topics of 'The Martingale Approach'. Together they form a unique fingerprint.

Cite this