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