Asia-Pacific Financial Markets

, Volume 16, Issue 1, pp 65–95

The Minimal Entropy Martingale Measures for Exponential Additive Processes

Article

Abstract

In this paper, we will consider exponential additive processes as a financial market model. Under a mild condition, we will determine the minimal entropy martingale measures (MEMMs) for the exponential additive processes. To this end, we will prepare several results on the exponential moment of additive processes and integrals based on them. As an application of our result, we will deduce optimal strategy for exponential utility maximization problem. We will also investigate our result through several examples, such as time-dependent versions of double Poisson model, Merton model and Kou model.

Keywords

Additive process Exponential additive process (Local) Martingale measure Minimal entropy martingale measure Exponential utility Optimal strategy 

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Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.Department of MathematicsHyogo University of Teacher EducationKato, HyogoJapan

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