The Annals of Applied Probability

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

Thorsten Rheinländer and Gallus Steiger

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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 Lévy 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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Ann. Appl. Probab. Volume 16, Number 3 (2006), 1319-1351.

First available: 2 October 2006

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Zentralblatt MATH identifier

Primary: 28D20: Entropy and other invariants 60G48: Generalizations of martingales 60H05: Stochastic integrals 91B28

Relative entropy martingale measures stochastic volatility


Rheinländer, Thorsten; Steiger, Gallus. The minimal entropy martingale measure for general Barndorff-Nielsen/Shephard models. The Annals of Applied Probability 16 (2006), no. 3, 1319--1351. doi:10.1214/105051606000000240.

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