The Relations between Minimal Martingale Measure and Minimal Entropy Martingale Measure |
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Authors: | Takuji Arai |
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Institution: | (1) Department of Mathematics, Keio University, Hiyoshi 3-14-1, Kohoku-ku, Yokohama, 223-8522, Japan |
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Abstract: | We consider incomplete markets, where each risky asset fluctuation is a continuous semimartingale, and study a subset of Equivalent Local Martingale Measures in which Minimal Martingale Measure minimizes relative entropy.We also discuss, as special cases, some models with the risky assetfluctuation represented as a solution of some stochastic differential equations.Finally, we mention that the predictable representation property is essentialin order that Minimal Martingale Measure coincides with Minimal Entropy Martingale Measure. |
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Keywords: | incomplete markets minimal martingale measure minimal entropy martingale measure predictable representation property |
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