A partially observed ultra-high-frequency data model: risk-minimizing hedging (Q2462626)

Ultra-high-frequency, UHF, data are available for many exchange market assets and are provided by financial databases offering the finest possible information recording the time at which a market event takes place together with its characteristics for all transactions or quotations. From a mathematical point of view, the UHF information, relative to a given stock, can be seen as a trajectory of a marked point process. The paper is concerned with a model for the intraday movements of asset prices where a double stochastic Poisson process models the times of the price changes. The main goal of the paper is the discussion of a pricing and hedging problem for an option \(B\), a random variable describing the payoff of a European contingent claim with maturity \(T\). The market is incomplete and the study of the risk-minimizing hedging strategies for derivatives under partial information leads to a nonlinear filtering problem. Under some Markovian assumptions, classical filtering techniques are used to evaluate the risk-minimizung hedging strategies.