An Entropy Approach to the Stein/Stein model with correlation

We outline a martingale duality method for determining the minimal entropy martingale measure in a general continuous semimartingale model, and provide the relevant verification results. This method is illustrated by a detailed case study of the Stein and Stein stochastic volatility model driven by two correlated Brownian motion. It turns out that in case the mean reversion level and the correlation coefficient are nonzero, an investor who can use trading strategies adated to the Brownian filtration my achieve a higher expected exponential utility from terminal wealth than an investor who can only observe the price process.