On two-parametric Esscher transform for geometric CGMY Lévy processes
by Wissem Boughamoura; Faouzi Trabelsi
International Journal of Operational Research (IJOR), Vol. 19, No. 3, 2014

Abstract: We present a new transformation measure depending on two parameters, called two-parametric Esscher transform, for CGMY processes. This transform defines a class of equivalent martingale measures for CGMY processes, preserving the CGMY character. We follow a decomposition approach by writing any CGMY process as sum of two independent CGMY ones. Next, following our approach, we focus on the relative entropy with respect to the initial probability and we provide optimal parameters, by minimising the relative entropy, which defines an equivalent martingale measure called 'model preserving minimal entropy martingale measure'. This measure has the advantage of preserving the CGMY character of any CGMY process. As application, we finally show that Asian option's price function, in a CGMY market model, is a solution of a time-dependent partial-integro differential equation.

Online publication date: Tue, 17-Jun-2014

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Operational Research (IJOR):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com