New measure selection for Hunt–Devolder semi-Markov regime switching interest rate models

Vasile Preda, Silvia Dedu () and Muhammad Sheraz

Physica A: Statistical Mechanics and its Applications, 2014, vol. 407, issue C, 350-359

Abstract: In this paper we construct the minimal entropy martingale for semi-Markov regime switching interest rate models using some general entropy measures. We prove that, for the one-period model, the minimal entropy martingale for semi-Markov processes in the case of the Tsallis and Kaniadakis entropies are the same as in the case of Shannon entropy.

Keywords: Binomial option pricing; Semi-Markov process; Regime switching; Martingale measure; Tsallis entropy; Kaniadakis entropy (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:407:y:2014:i:c:p:350-359

DOI: 10.1016/j.physa.2014.04.011

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