Explain technical terms in Girsanov’s Theorem

Question

Explain technical terms in Girsanov’s Theorem.

Answer 1

It will be helpful if we explain some of the more technical terms in this Girsanov's Theorem.

• Sample space: In this all possible future outcomes or states.
• (Probability) Measure: It in layman's terms, the measure provides the probabilities of each of the outcomes within the sample space.
• Previsible: The previsible process is one that only depends upon the previous history.
• Equivalent: Two measures are equivalent when they have similar sample space and similar set of 'possibilities.' Notice the use of the word possibilities in place of probabilities. The two measures can have various probabilities for each outcome but should agree on what is possible.