The relative entropy in CGMY processes and its applications to finance

Young Kim () and Jeong Lee ()

Mathematical Methods of Operations Research, 2007, vol. 66, issue 2, 327-338

Abstract: The CGMY market model generates infinite equivalent martingale measures (EMM). In order to price options, we need an adequate method to choose one EMM. This paper presents the relative entropy for CGMY processes, and apply it to choosing an EMM called the model preserving minimal entropy martingale measure. Copyright Springer-Verlag 2007

Keywords: Incomplete market; CGMY process; Relative entropy; Esscher transform; Minimal entropy martingale measure; 60E07; 60E10; 60G44; 60G51; 60G52; 60J75; 91B24; 94A17 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00186-006-0097-x (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:mathme:v:66:y:2007:i:2:p:327-338

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/00186

DOI: 10.1007/s00186-006-0097-x

Access Statistics for this article

Mathematical Methods of Operations Research is currently edited by Oliver Stein

More articles in Mathematical Methods of Operations Research from Springer, Gesellschaft für Operations Research (GOR), Nederlands Genootschap voor Besliskunde (NGB)
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().