Journal of Applied Probability

The minimal entropy martingale measure for exponential Markov chains

Young Lee and Thorsten Rheinländer

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Abstract

In this article we investigate the minimal entropy martingale measure for continuous-time Markov chains. The conditions for absence of arbitrage and existence of the minimal entropy martingale measure are discussed. Under this measure, expressions for the transition intensities are obtained. Differential equations for the arbitrage-free price are derived.

Article information

Source
J. Appl. Probab., Volume 50, Number 2 (2013), 344-358.

Dates
First available in Project Euclid: 19 June 2013

Permanent link to this document
https://projecteuclid.org/euclid.jap/1371648945

Digital Object Identifier
doi:10.1239/jap/1371648945

Mathematical Reviews number (MathSciNet)
MR3102484

Zentralblatt MATH identifier
1276.60079

Subjects
Primary: 60J25: Continuous-time Markov processes on general state spaces
Secondary: 91B28

Keywords
Continuous-time Markov chain relative entropy martingale measure

Citation

Lee, Young; Rheinländer, Thorsten. The minimal entropy martingale measure for exponential Markov chains. J. Appl. Probab. 50 (2013), no. 2, 344--358. doi:10.1239/jap/1371648945. https://projecteuclid.org/euclid.jap/1371648945


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