The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models

Rheinlander, Thorsten and Steiger, Gallus (2006) The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models. Annals of applied probability, 16 (3). pp. 1319-1351. ISSN 1050-5164

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Abstract

We determine the minimal entropy martingale measure for a general class of stochastic volatility models where both price process and volatility process contain jump terms which are correlated. This generalizes previous studies which have treated either the geometric Lévy case or continuous price processes with an orthogonal volatility process. We proceed by linking the entropy measure to a certain semi-linear integro-PDE for which we prove the existence of a classical solution.

Item Type:	Article
Official URL:	http://www.imstat.org/aap/
Additional Information:	© 2006 IMS
Uncontrolled Keywords:	relative entropy, martingale measures, stochastic volatility
Library of Congress subject classification:	Q Science > QA Mathematics
Journal of Economic Literature Classification System:	A - General Economics and Teaching > A1 - General Economics
Sets:	Departments > Statistics
Rights:	http://www.lse.ac.uk/library/rights/LSERO.htm
URL:	http://eprints.lse.ac.uk/16351/

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