Minimal entropy preserves the Lévy property: how and why

Felix Esche and Martin Schweizer

Stochastic Processes and their Applications, 2005, vol. 115, issue 2, 299-327

Abstract: Let L be a multidimensional Lévy process under P in its own filtration and consider all probability measures Q turning L into a local martingale. The minimal entropy martingale measure QE is the unique Q which minimizes the relative entropy with respect to P. We prove that L is still a Lévy process under QE and explain precisely how and why this preservation of the Lévy property occurs.

Keywords: Lévy; processes; Martingale; measures; Relative; entropy; Minimal; entropy; martingale; measure; Mathematical; finance; Incomplete; markets (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (20)

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