WORKSHOP ON RISK ANALYSIS AND APPLICATIONS
24 and 25 of SEPTEMBER, 2025
Institute of Mathematics and, Statistics of the University of São Paulo, Brazil
SATELLITE WORKSHOP OF
8th BRAZILIAN CONFERENCE ON STATISTICAL MODELING IN INSURANCE AND FINANCE
WORKSHOP ON RISK ANALYSIS AND APPLICATIONS
24 and 25 of SEPTEMBER, 2025
Institute of Mathematics and, Statistics of the University of São Paulo, Brazil
SATELLITE WORKSHOP OF
8th BRAZILIAN CONFERENCE ON STATISTICAL MODELING IN INSURANCE AND FINANCE
Minicourse Title: A Simple Approach to Girsanov Transformation and Application in Finance
In this short course we shall construct a discrete-time discrete-space stochastic process (quite different from the Binomial model) that allows us to exhibit clearly that a drift transformation applied to its trajectories may be presented equivalently by an appropriate change of the measure that governs the process. This equivalence is the essence of what is called the Girsanov's theorem/transformation.
We shall then explain briefly the fundamentals of risk neutral valuation used for valuation of financial derivatives. All these will be put in application to find the price of a specific option on stock which returns follow the Brownian Motion with a drift. The properties of the Brownian Motion needed for this exposition will be explained at elementary level.