The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models

Details The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models

2006-10-06

arxiv.org/abs/math/0610219v1

Annals of Applied Probability 2006, Vol. 16, No. 3, 1319-1351

Mathematics

Probability

Published at http://dx.doi.org/10.1214/105051606000000240 in the Annals of Applied Probability (http://www.imstat.org/aap/) by

Scientific paper

10.1214/105051606000000240

We determine the minimal entropy martingale measure for a general class of stochastic volatility models where both price process and volatility process contain jump terms which are correlated. This generalizes previous studies which have treated either the geometric L\'{e}vy case or continuous price processes with an orthogonal volatility process. We proceed by linking the entropy measure to a certain semi-linear integro-PDE for which we prove the existence of a classical solution.

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