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

Thorsten Rheinlander and Gallus Steiger

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: relative entropy; martingale measures; stochastic volatility (search for similar items in EconPapers)
JEL-codes: A1 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

Published in Annals of Applied Probability, 2006, 16(3), pp. 1319-1351. ISSN: 1050-5164

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