The density process of the minimal entropy martingale measure in a stochastic volatility model with jumps

Fred Benth () and Thilo Meyer-Brandis ()

Finance and Stochastics, 2005, vol. 9, issue 4, 563-575

Abstract: We derive the density process of the minimal entropy martingale measure in the stochastic volatility model proposed by Barndorff-Nielsen and Shephard [2]. The density is represented by the logarithm of the value function for an investor with exponential utility and no claim issued, and a Feynman-Kac representation of this function is provided. The dynamics of the processes determining the price and volatility are explicitly given under the minimal entropy martingale measure, and we derive a Black & Scholes equation with integral term for the price dynamics of derivatives. It turns out that the minimal entropy price of a derivative is given by the solution of a coupled system of two integro-partial differential equations. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Stochastic volatility; Lévy processes; subordinators; minimal entropy martingale measure; density process; incomplete market; indifference pricing of derivatives; integro-partial differential equations (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00780-005-0161-z (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:9:y:2005:i:4:p:563-575

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-005-0161-z

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().