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

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.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11386/4648678
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