2022/01/14 by Dejian Tian, Tian, Dejian · 2 citations
Economics, Econometrics and Finance · Physics and Astronomy · #91G80 #FOS: Economics and business #Financial Risk and Volatility Modeling #Mathematical Finance (q-fin.MF) #Primary 91G20 #Statistical Mechanics and Entropy #Stochastic processes and financial applications #secondary 60H30
paper · pdf · doi:10.48550/arxiv.2201.05316
openalex publication_date 2022/01/14 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
A pricing principle is introduced for non-attainable q-exponential bounded contingent claims in an incomplete Brownian motion market setting. The buyer evaluates the contingent claim under the ``distorted Radon-Nikodym derivative'' and adjustment by Tsallis relative entropy over a family of equivalent martingale measures. The pricing principle is proved to be a time consistent and arbitrage-free pricing rule. More importantly, this pricing principle is found to be closely related to backward stochastic differential equations with generators f(y)|z|2 type. The pricing functional is compatible with prices for attainable claims. Except translation invariance, the pricing principle processes lots of elegant properties such as monotonicity and concavity etc. The pricing functional is showed between minimal martingale measure pricing and conditional certainty equivalent pricing under q-exponential utility. The asymptotic behavior of the pricing principle for ambiguity aversion coefficient is also investigated.