Minimal entropy preserves the Lévy property: how and why

Let L be a multidimensional Lévy process under P in its own filtration and consider all probability measures Q turning L into a local martingale. The minimal entropy martingale measure QE is the unique Q which minimizes the relative entropy with respect to P. We prove that L is still a Lévy process under QE and explain precisely how and why this preservation of the Lévy property occurs.

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Year of publication:	2005
Authors:	Esche, Felix ; Schweizer, Martin
Published in:	Stochastic Processes and their Applications. - Elsevier, ISSN 0304-4149. - Vol. 115.2005, 2, p. 299-327
Publisher:	Elsevier
Keywords:	Lévy processes Martingale measures Relative entropy Minimal entropy martingale measure Mathematical finance Incomplete markets

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008874419