On jump-diffusion processes with regime switching: martingale approach

Antonio Di Crescenzo; Nikita Ratanov

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arXiv · 1508.04533

On jump-diffusion processes with regime switching: martingale approach

Antonio Di Crescenzo·Nikita Ratanov

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Abstract

We study jump-diffusion processes with parameters switching at random times. Being motivated by possible applications, we characterise equivalent martingale measures for these processes by means of the relative entropy. The minimal entropy approach is also developed. It is shown that in contrast to the case of L\'evy processes, for this model an Esscher transformation does not produce the minimal relative entropy.

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Antonio Di Crescenzo, Nikita Ratanov. 2015-08-19. On jump-diffusion processes with regime switching: martingale approach. https://arxiv.org/abs/1508.04533

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