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2006•Journal of Henan Normal UniversityRequires access

The Equivalent Martingale Measures for the Stochastic Volatility Model

Liu Li-min

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Abstract

This paper deals with the equivalent martingale measures for the stochastic volatility model.Using the dynamic programming approach,the minimal entropy martingale measure is constructed by the utility indifference pricing,the minimal martingale measure and the variance-optimal martingale measures are given.Furthermore,it is shown that these martingale measure are in fact different.

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What this paper is about

This paper deals with the equivalent martingale measures for the stochastic volatility model.Using the dynamic programming approach,the minimal entropy martingale measure is constructed by the utility indifference pricing,the minimal martingale measure and the variance-optimal martingale measures are given.Furthermore,it is shown that these martingale measure are in fact different.

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Available abstract

This paper deals with the equivalent martingale measures for the stochastic volatility model.Using the dynamic programming approach,the minimal entropy martingale measure is constructed by the utility indifference pricing,the minimal martingale measure and the variance-optimal martingale measures are given.Furthermore,it is shown that these martingale measure are in fact different.

Key concepts: Martingale pricing, Martingale (probability theory), Doob's martingale inequality, Local martingale, Martingale difference sequence, Mathematics, Stochastic volatility, Econometrics

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