Multi-Dimensional Martingales from Mutual Information
Abstract
In the context of Risk Neutral Pricing theory, we consider the classic problem of calibrating a martingale over to a finite number of marginals thereof, or more practically, to prices of an arbitrary finite set of (joint) European contingent claims. For , one can rely on the work of Dupire, while for an analogous natural unique construction seems to be lacking. We provide such a unique candidate as the result of pure Martingale Entropic Optimal Transport. As a byproduct, the latter allows us to obtain a constructive proof of a classic result of Strassen. Finally, and in contrast to the proposed approach, we prove a result that demonstrates how a certain class of local correlation models fails in general to calibrate to basket option prices, particularly in the foreign exchange market.
Cite
@article{arxiv.2512.16544,
title = {Multi-Dimensional Martingales from Mutual Information},
author = {Michael M. Kay},
journal= {arXiv preprint arXiv:2512.16544},
year = {2025}
}