Regression modelMathematical Techniques
Change of Numeraire
Change of numeraire is a mathematical technique for simplifying option pricing by changing the choice of discount factor (numeraire). By selecting a numeraire aligned with the payoff structure, complex problems become simple. The technique is essential for LIBOR market models and multi-currency derivatives.
Apply with EconMindSoonVideoSoon
Read the full method
Members only
Sign inSign in with a free account to read this section.
Sources
- Geman, H., El Karoui, N., & Rochet, J. C. (1995). Changes of numeraire, changes of probability measure and option pricing. Journal of Applied Probability, 32(2), 443-458. DOI: 10.1017/S0021900200099594 ↗
- Brigo, D., & Mercurio, F. (2006). Interest Rate Models: Theory and Practice (2nd ed.). Springer-Verlag. DOI: 10.1007/978-3-540-34604-3 ↗