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Martingale and equivalent martingal measures

s1645544

Active Member
Hi, potentially showing a lack of understanding of these concepts but could someone please help me understand the below. Any help is much appreciated.

This question is related to Question 5 April 2023.

I understand that
- a martingale has zero drift, i.e. mu in the SDE = 0.
- to show that something is an equivalent martingale measure, we need to demonstrate that the discounted asset price is a martingale

In Question 5 in April 2023

When solving for c, we set the drift parameters equal to each other, rather than to 0 as I attempted. So the resulting drift parameter is equal to the risk free rate.

So does that mean an equivalent martingale measure is not a martingale because the drift is not zero.

However if we discounted an equivalent martingale measure would we get a drift of zero.

Thanks in advance.
 
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