English

$F$-divergence minimal equivalent martingale measures and optimal portfolios for exponential Levy models with a change-point

Portfolio Management 2018-03-14 v3 Probability

Abstract

We study exponential Levy models with change-point which is a random variable, independent from initial Levy processes. On canonical space with initially enlarged filtration we describe all equivalent martingale measures for change-point model and we give the conditions for the existence of f-divergence minimal equivalent martingale measure. Using the connection between utility maximisation and ff-divergence minimisation, we obtain a general formula for optimal strategy in change-point case for initially enlarged filtration and also for progressively enlarged filtration in the case of exponential utility. We illustrate our results considering the Black-Scholes model with change-point.

Keywords

Cite

@article{arxiv.1004.3525,
  title  = {$F$-divergence minimal equivalent martingale measures and optimal portfolios for exponential Levy models with a change-point},
  author = {S. Cawston and L. Vostrikova},
  journal= {arXiv preprint arXiv:1004.3525},
  year   = {2018}
}

Comments

31 pages, no figures