This paper examines the B¨uhlmann’s equilibrium pricing model (1980) in the presence of transaction cost and derives the (multivariate) Esscher transform within the framework under some assumptions. The result reveals that the Esscher transform is an appropriate probability transform for the...

In this paper, we determine the lowest cost strategy for a given payoff in Lévy markets where the pricing is based on the Esscher martingale measure. In particular, we consider Lévy models where prices are driven by a normal inverse Gaussian (NIG)- or a variance Gamma (VG)-process. Explicit...

The CGMY market model generates infinite equivalent martingale measures (EMM). In order to price options, we need an adequate method to choose one EMM. This paper presents the relative entropy for CGMY processes, and apply it to choosing an EMM called the model preserving minimal entropy...

Dollar cost averaging (DCA) is a widely employed investment strategy in financial markets. At the same time it is also well documented that such gradual policy is sub-optimal from the point of view of risk averse decision makers with a fixed investment horizon T 0. However, an explicit strategy...

Under discrete-time GARCH models markets are incomplete so there is more than one price kernel for valuing contingent claims. This motivates the quest for selecting an appropriate price kernel. Different methods have been proposed for the choice of a price kernel. Some of them can be justified...

There is good empirical evidence to show that the financial series, whether stocks or indices, currencies or interest rates do not follow the log-normal random walk underlying the Black-Scholes model, which is the basis for most of the theory of options valuation. This article presents a...

In this paper we offer a systematic survey and comparison of the Esscher martingale transform for linear processes, the Esscher martingale transform for exponential processes, and the minimal entropy martingale measure for exponential Levy models, and present some new results in order to give a...