 On two-parametric Esscher transform for geometric CGMY Lévy processesWissem Boughamoura and Faouzi Trabelsi International Journal of Operational Research, 2014, vol. 19, issue 3, 280-301 Abstract: We present a new transformation measure depending on two parameters, called two-parametric Esscher transform, for CGMY processes. This transform defines a class of equivalent martingale measures for CGMY processes, preserving the CGMY character. We follow a decomposition approach by writing any CGMY process as sum of two independent CGMY ones. Next, following our approach, we focus on the relative entropy with respect to the initial probability and we provide optimal parameters, by minimising the relative entropy, which defines an equivalent martingale measure called 'model preserving minimal entropy martingale measure'. This measure has the advantage of preserving the CGMY character of any CGMY process. As application, we finally show that Asian option's price function, in a CGMY market model, is a solution of a time-dependent partial-integro differential equation. Keywords: CGMY processes; equivalent martingale measures; EMMs; relative entropy; model preserving minimal entropy martingale measure; MPMEMM; Asian option; partial integro-differential equation; PIDE; transformation measures; two-parametric Esscher transform. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijores:v:19:y:2014:i:3:p:280-301 Access Statistics for this article More articles in International Journal of Operational Research from Inderscience Enterprises Ltd |
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