Monoyios, Michael (2007) The minimal entropy measure and an Esscher transform in an incomplete market model. Statistics and Probability Letters, 77 . pp. 1070-1076.
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We consider an incomplete market model with one traded stock and two correlated Brownian motions ,. The Brownian motion drives the stock price, whose volatility and Sharpe ratio are adapted to the filtration generated by . We show that the projections of the minimal entropy and minimal martingale measures onto are related by an Esscher transform involving the correlation between ,, and the mean-variance trade-off process. The result leads to a new formula for the marginal exponential utility-based price of an -measurable European claim.
|Subjects:||O - Z > Probability theory and stochastic processes|
|Research Groups:||Mathematical and Computational Finance Group|
|Deposited By:||Professor Michael Monoyios|
|Deposited On:||06 Jul 2007|
|Last Modified:||20 Jul 2009 14:22|
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- The minimal entropy measure and an Esscher transform in an incomplete market model. (deposited 11 Jan 2006)
- The minimal entropy measure and an Esscher transform in an incomplete market model. (deposited 06 Jul 2007) [Currently Displayed]
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