Convex pricing by a generalized entropy penalty

Johannes Leitner

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Abstract: In an incomplete Brownian-motion market setting, we propose a convex monotonic pricing functional for nonattainable bounded contingent claims which is compatible with prices for attainable claims. The pricing functional is defined as the convex conjugate of a generalized entropy penalty functional and an interpretation in terms of tracking with instantaneously vanishing risk can be given.

Date: 2008-04
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Citations: View citations in EconPapers (2)

Published in Annals of Applied Probability 2008, Vol. 18, No. 2, 620-631

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