optionmeasure
Option measure is a term used in financial mathematics to describe the probability measure under which option prices are computed in a no-arbitrage framework. More precisely, it is an equivalent martingale (or risk-neutral) measure Q defined on the same probability space as the real-world measure P, such that the discounted prices of tradable assets are martingales. Under Q, the present value of a payoff is obtained by taking the expected value of the payoff discounted at the risk-free rate.
The option measure is related to the state price density or pricing kernel, which links payoffs to
Practically, pricing an option with the option measure involves computing E^Q[ e^{-∫ r_t dt} X_T ], where
In summary, the option measure is the probabilistic framework used to price options consistently with no-arbitrage,