On the minimal entropy martingale measure for Lévy processes

DOI10.1080/17442508.2019.1693571MaRDI QIDQ5086534zbMATH OpenOpenAlexFDO

Authors Andrii Andrusiv, H.-J. Engelbert

Publication date 5 July 2022

Published in Stochastics (Search for Journal in Brave)

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

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)

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

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Cited in

(18)

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• 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
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• 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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