Option price calibration from Rényi entropy

@inproceedings{Brody2007OptionPC,
  title={Option price calibration from R{\'e}nyi entropy},
  author={Dorje C. Brody and Ian R.C. Buckley and Irene C. Constantinou},
  year={2007}
}
The calibration of the risk-neutral density function for the future asset price, based on the maximisation of the entropy measure of Renyi, is proposed. Whilst the conventional approach based on the use of logarithmic entropy measure fails to produce the observed power-law distribution when calibrated against option prices, the approach outlined here is shown to produce the desired form of the distribution. Procedures for the maximisation of the Renyi entropy under constraints are outlined in… CONTINUE READING

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