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Convex pricing by a generalized entropy penalty

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  • Johannes Leitner

Abstract

In an incomplete Brownian-motion market setting, we propose a convex monotonic pricing functional for nonattainable bounded contingent claims which is compatible with prices for attainable claims. The pricing functional is defined as the convex conjugate of a generalized entropy penalty functional and an interpretation in terms of tracking with instantaneously vanishing risk can be given.

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  • Johannes Leitner, 2008. "Convex pricing by a generalized entropy penalty," Papers 0804.0127, arXiv.org.
    • Handle: RePEc:arx:papers:0804.0127
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    Cited by:

    1. Lécuyer, Emy & Riedel, Frank & Stanca, Lorenzo, 2024. "Arbitrage Pricing in Convex, Cash-Additive Markets," Center for Mathematical Economics Working Papers 694, Center for Mathematical Economics, Bielefeld University.
    2. Dejian Tian, 2022. "Pricing principle via Tsallis relative entropy in incomplete market," Papers 2201.05316, arXiv.org, revised Oct 2022.

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