Statistics and Probability Commons^™

Drift And The Risk-Free Rate, Anda Gadidov, M. C. Spruill

Faculty and Research Publications

It is proven, under a set of assumptions differing from the usual ones in the unboundedness of the time interval, that, in an economy in equilibrium consisting of a risk-free cash account and an equity whose price process is a geometric Brownian motion on [0,∞), the drift rate must be close to the risk-free rate; if the drift rate μ and the risk-free rate r are constants, then r = μ and the price process is the same under both empirical and risk neutral measures. Contributing in some degree perhaps to interest in this mathematical curiosity is the fact, based …