Convex pricing by a generalized entropy penalty

Citation
Leitner, Johannes, Convex pricing by a generalized entropy penalty, Annals of applied probability , 18(2), 2008, pp. 620-631
ISSN journal
10505164
Volume
18
Issue
2
Year of publication
2008
Pages
620 - 631
Database
ACNP
SICI code
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.