Density process of the minimal entropy martingale measure in a stochastic volatility market : a PDE approach

Loading...
Thumbnail Image

Date

Authors

Kufakunesu, Rodwell

Journal Title

Journal ISSN

Volume Title

Publisher

Taylor & Francis

Abstract

In a stochastic volatility market the Radon-Nikodym density of the minimal entropy martingale measure can be expressed in terms of the solution of a semilinear partial differential equation (PDE). This fact has been explored and illustrated for the time-homogeneous case in a recent paper by Benth and Karlsen. However, there are some cases which time-dependent parameters are required such as when it comes to calibration. This paper generalizes their model to the time-inhomogeneous case.

Description

Keywords

Utility optimisation, Stochastic volatility, Incomplete market, Minimal entropy, Martingale measure, Hamilton-Jacobi-Bellman equation

Sustainable Development Goals

Citation

Kufakunesu, R 2011, 'The density process of the minimal entropy martingale measure in a stochastic volatility market : a PDE approach', Queastiones Mathematicae, vol. 34, pp. 147-174.