The Annals of Applied Probability

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.

Article information

Source
Ann. Appl. Probab. Volume 18, Number 2 (2008), 620-631.

Dates
First available in Project Euclid: 20 March 2008

Permanent link to this document
https://projecteuclid.org/euclid.aoap/1206018199

Digital Object Identifier
doi:10.1214/07-AAP466

Mathematical Reviews number (MathSciNet)
MR2399707

Zentralblatt MATH identifier
1141.93069

Subjects
Primary: 93E20: Optimal stochastic control 91B28 58E17: Pareto optimality, etc., applications to economics [See also 90C29]

Keywords
Hedging with vanishing risk generalized entropy quadratic BSDE

Citation

Leitner, Johannes. Convex pricing by a generalized entropy penalty. Ann. Appl. Probab. 18 (2008), no. 2, 620--631. doi:10.1214/07-AAP466. https://projecteuclid.org/euclid.aoap/1206018199


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