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The Pricing Measure for Geometric Levy Processes under Incomplete Financial Markets

Journal of Financial Studies

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Title The Pricing Measure for Geometric Levy Processes under Incomplete Financial Markets
 
Creator Hwai-Chung Ho
Tsun-Siou Lee
Hung-Chou Tsai
 
Description In this paper, Esscher transformation is applied to construct a martingale measure in the framework of geometric Levy process. By means of a relation between exponential Levy process and stochastic exponential of Levy process, it is shown that a Levy process is a martingale if and only if its stochastic exponential is a martingale.
While Esche and Schweizer (2005) offer the sufficient condition for the Esscher measure to be the minimal entropy martingale measure, we provide the necessary condition for the statement to be true based on the above result.
Key words: minimal entropy martingale measure, exponential Levy process, stochastic exponential of Levy process
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Date 2011-03-10
 
Type
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011058
 
Source Journal of Financial Studies; Vol 17, No 1 (2009); 107
財務金èžå­¸åˆŠ; Vol 17, No 1 (2009); 107
 
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