On the minimal entropy martingale measure for Lévy processes

DOI10.1080/17442508.2019.1693571zbMATH Open1490.60111arXiv1912.06903OpenAlexW2990312403MaRDI QIDQ5086534FDOQ5086534

Authors: Andrii Andrusiv, H.-J. Engelbert 

Publication date: 5 July 2022

Published in: Stochastics (Search for Journal in Brave)

Abstract: In the present paper, a new and simple approach is provided for proving rigorously that for general L'evy financial markets the minimal entropy martingale measure and the Esscher martingale measure coincide. The method consists in approximating the probability measure P by a sequence of L'evy preserving probability measures P_n with exponential moments of all order. As a by-product, it turns out that the problem of finding the minimal entropy martingale measure for the L'evy market is equivalent to the corresponding problem but for a certain one-step financial market. The existence of the Esscher martingale measure (and hence the minimal entropy martingale measure) will be characterized by using moment generating functions of the L'evy process. Keywords: L'evy financial markets; minimal entropy martingale measure; Esscher martingale measure; no-arbitrage conditions; moment generating functions. MSC (2010) Classification: Primary 60G51, 60G44, 91G99; Secondary 91B25, 91B16

Full work available at URL: https://arxiv.org/abs/1912.06903

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zbMATH Keywords

minimal entropy martingale measuremoment generating functionsno-arbitrage conditionsEsscher martingale measureLévy financial markets

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Utility theory (91B16) Martingales with continuous parameter (60G44) Actuarial science and mathematical finance (91G99)

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Cited In (18)

• On the Convergence of thep-Optimal Martingale Measures to the Minimal Entropy Martingale Measure
• From the minimal entropy martingale measures to the optimal strategies for the exponential utility maximization: The case of geometric Lévy processes
• The minimal entropy martingale measures for exponential additive processes
• The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models
• The \(p\)-optimal martingale measure and its asymptotic relation with the minimal-entropy martingale measure
• Minimal \(f^q\)-Martingale measures for exponential Lévy processes
• Minimal entropy preserves the Lévy property: how and why
• Esscher transforms and the minimal entropy martingale measure for exponential Lévy models
• On the minimal entropy martingale measure.
• Title not available (Why is that?)
• A martingale bound for the entropy associated with a trimmed filtration on \(\mathbb{R}^d\)
• Minimization with respect to entropy in the problem of finding a martingale measure
• The minimal entropy martingale measures for geometric Lévy processes
• A continuous-time model of self-protection
• A semimartingale BSDE related to the minimal entropy martingale measure
• The density process of the minimal entropy martingale measure in a stochastic volatility model with jumps
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• Minimal relative entropy for equivalent martingale measures by low-discrepancy sequence in Lévy process

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