IDEAS home Printed from https://ideas.repec.org/a/bla/mathfi/v10y2000i1p39-52.html
   My bibliography  Save this article

The Minimal Entropy Martingale Measure and the Valuation Problem in Incomplete Markets

Author

Listed:
  • Marco Frittelli

Abstract

Let χ be a family of stochastic processes on a given filtered probability space (Ω, F, (Ft)t∈T, P) with T⊆R+. Under the assumption that the set Me of equivalent martingale measures for χ is not empty, we give sufficient conditions for the existence of a unique equivalent martingale measure that minimizes the relative entropy, with respect to P, in the class of martingale measures. We then provide the characterization of the density of the minimal entropy martingale measure, which suggests the equivalence between the maximization of expected exponential utility and the minimization of the relative entropy.

Suggested Citation

  • Marco Frittelli, 2000. "The Minimal Entropy Martingale Measure and the Valuation Problem in Incomplete Markets," Mathematical Finance, Wiley Blackwell, vol. 10(1), pages 39-52, January.
    • Handle: RePEc:bla:mathfi:v:10:y:2000:i:1:p:39-52
    DOI: 10.1111/1467-9965.00079
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-9965.00079
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-9965.00079?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:mathfi:v:10:y:2000:i:1:p:39-52. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.