Numeraire

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Numeraire

Postby sraks » Thu Feb 24, 2011 8:17 pm

Dr. Joshi and Fellow users,

Can any market traded instrument be used as a numeraire? If not, why. Please give concrete examples.
In case I missed it, please point to any section in "Concepts" that talks about this issue.

Regards,
SR
sraks
 
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Re: Numeraire

Postby mj » Thu Feb 24, 2011 11:16 pm

basically as long as you use the price process of a self-financing portfolio and it's always positive, you are ok.
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Re: Numeraire

Postby sraks » Thu Feb 24, 2011 11:26 pm

Thanks Dr. J. I am sure there is a "deep" connection to the >0 part. Does it have something to do with proving bounds? Does it mean anything intuitively?

Regards,
SR
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Re: Numeraire

Postby mj » Fri Feb 25, 2011 12:06 am

the idea is that it's your unit of currency so every time you receive a cash-flow you turn it into that unit. If it could be zero that would be highly problematic.
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Re: Numeraire

Postby sraks » Fri Feb 25, 2011 10:23 pm

Thanks Dr. J.
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