$F$-divergence minimal equivalent martingale measures and optimal portfolios for exponential Levy models with a change-point

S. Cawston and L. Vostrikova

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Abstract: We study exponential Levy models with change-point which is a random variable, independent from initial Levy processes. On canonical space with initially enlarged filtration we describe all equivalent martingale measures for change-point model and we give the conditions for the existence of f-divergence minimal equivalent martingale measure. Using the connection between utility maximisation and $f$-divergence minimisation, we obtain a general formula for optimal strategy in change-point case for initially enlarged filtration and also for progressively enlarged filtration in the case of exponential utility. We illustrate our results considering the Black-Scholes model with change-point.

Date: 2010-04, Revised 2011-06
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Citations: View citations in EconPapers (1)

Published in In R. Dalang, M. Dozzi, F. Russo (Editors). Stochastic analysis, random fields and applications VI. Progress in Probability 67, 2013, 285-305

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1004.3525

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