M. Mania, M. Santacroce, R. Tevzadze

The Bellman Equation Related to the Minimal Entropy Martingale Measure

We derive a backward stochastic differential equation and a Bellman equation characterizing the minimal entropy martingale measure for market models, where asset prices are driven by Markov diffusion processes. A relation between these equations is established.

Minimal entropy martingale measure, backward stochastic differential equation, Bellman equation, incomplete market, stochastic volatility model.

MSC 2000: 91B28, 60H30, 90C39.