Consistent pricing process
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A consistent pricing process (CPP) is any representation of (frictionless) "prices" of assets in a market. It is a stochastic process in a filtered probability space such that at time
the
component can be thought of as a price for the
asset.
Mathematically, a CPP in a market with d-assets is an adapted process in
if Z is a martingale with respect to the physical probability measure
, and if
at all times
such that
is the solvency cone for the market at time
.[1][2]
The CPP plays the role of an equivalent martingale measure in markets with transaction costs.[3] In particular, there exists a 1-to-1 correspondence between the CPP and the EMM
.[citation needed]
References
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