We study jump-diffusion processes with parameters switching at random times. Being motivated by possible applications, we characterise equivalent martingale measures for these processes by means of the relative entropy. The minimal entropy approach is also developed. It is shown that in contrast to the case of Lévy processes, for this model an Esscher transformation does not produce the minimal relative entropy.
On jump-diffusion processes with regime switching: martingale approach
DI CRESCENZO, Antonio;
2015-01-01
Abstract
We study jump-diffusion processes with parameters switching at random times. Being motivated by possible applications, we characterise equivalent martingale measures for these processes by means of the relative entropy. The minimal entropy approach is also developed. It is shown that in contrast to the case of Lévy processes, for this model an Esscher transformation does not produce the minimal relative entropy.File in questo prodotto:
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