Abstract
Abstract Suppose that discounted asset prices in a financial market are given by a P ‐semimartingale S . Among all probability measures Q that turn S into a local Q ‐martingale, the minimal entropy martingale measure is characterized by the property that it minimizes the relative entropy with respect to P . Via convex duality, it is intimately linked to the problem of maximizing expected exponential utility from terminal wealth. It also appears as a limit of p ‐optimal martingale measures as p decreases to 1. Like for most optimal martingale measures, finding its explicit form is easy if S is an exponential Lévy process and quite difficult otherwise.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
