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Economic Dynamics and Sustainable Development – Resources, Factors, Structures and Policies

Proceedings ESPERA 2015 – Part 1 and Part 2

Luminita Chivu, Constantin Ciutacu, Valeriu Ioan-Franc and Jean-Vasile Andrei

The book is dedicated to the 150th anniversary of the Romanian Academy. It contains the most valuable 100 papers presented at the International Conference «Economic Scientific Research – Theoretical, Empirical and Practical Approaches» (ESPERA 2015). The event is initiated annually by the National Institute for Economic Research «Costin C. Kirițescu» of the Romanian Academy. ESPERA aim to present and evaluate the economic scientific research portfolio as well as to argue and substantiate development strategies, including European and global best practices. ESPERA intend to become a scientific support for the conceptualization and the establishment of policies and strategies and to provide a systematic, permanent, wide and challenging dialogue within the European area of economic and social research.

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The Minimal Weighted Kaniadakis Entropy Martingale Measure for Valuation Problems in Financial Markets (Muhammad Sheraz / Vasile Preda / Silvia Dedu)


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Muhammad Sheraz1, Vasile Preda2 & Silvia Dedu3

The Minimal Weighted Kaniadakis Entropy Martingale Measure for Valuation Problems in Financial Markets

Abstract: Martingales are one of the most important tools in modern probability and finance theory. In an incomplete market there exists an infinite number of martingale measures and the measure selection has always been crucial to making a model useful. Recently, the application of entropy in finance has become an interesting and valuable approach in various fields of research in finance, such as portfolio selection, asset pricing and measure selection in interest rate models. In this paper we study the problem of one period finite state market model to explicitly compute the Weighted Kaniadakis projections. The solution of the minimal entropy martingale measure problem is derived by using the weighted Kanidakis entropy measure as an objective function. The theoretical results obtained are used to compute the minimal entropy martingale measure for different choices of the parameters.

Keywords: Valuation problems; measure selection; one period finite state market model; minimal entropy martingale measure; weighted Kaniadakis entropy.

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