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The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models

By Thorsten Rheinlander and Gallus Steiger

Abstract

We determine the minimal entropy martingale measure for a general class of stochastic volatility models where both price process and volatility process contain jump terms which are correlated. This generalizes previous studies which have treated either the geometric Lévy case or continuous price processes with an orthogonal volatility process. We proceed by linking the entropy measure to a certain semi-linear integro-PDE for which we prove the existence of a classical solution

Topics: QA Mathematics
Publisher: IMS
Year: 2006
DOI identifier: 10.1214/105051606000000240
OAI identifier: oai:eprints.lse.ac.uk:16351
Provided by: LSE Research Online

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