The one-period spot interest rate is defined by
(1)
and the bank account by
(2)
A probability measure equivalent to the physical measure is a risk-neutral measure when every discounted zero-coupon bond price
(3)
is a -martingale. Equivalently,
(4)

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  3. Paper 211
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  5. 2019
  6. Past exam of the mathematics course of the University of Cambridge
  7. Mathematics course of the University of Cambridge
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