A Theory of Equivalent Expectation Measures for Contingent Claim Returns

This paper introduces a dynamic change of measure approach for computing analytical solutions expected future prices (and therefore, returns) contingent claims over finite horizon. The new constructs hybrid probability measures called equivalent expectation (EEMs) that provide the physical claim's price before horizon date, and serve as pricing on or after date. EEM theory can be used empirical investigations both cross-section term structure returns claims, such Treasury bonds, corporate financial derivatives.