Market viability and martingale measures under partial information

DOI10.1007/S11009-014-9397-4zbMATH Open1338.60121arXiv1302.4254OpenAlexW1965341502MaRDI QIDQ2340293FDOQ2340293

B. Øksendal, Claudio Fontana, Agnès Sulem

Publication date: 16 April 2015

Published in: Methodology and Computing in Applied Probability (Search for Journal in Brave)

Abstract: We consider a financial market model with a single risky asset whose price process evolves according to a general jump-diffusion with locally bounded coefficients and where market participants have only access to a partial information flow. For any utility function, we prove that the partial information financial market is locally viable, in the sense that the optimal portfolio problem has a solution up to a stopping time, if and only if the (normalised) marginal utility of the terminal wealth generates a partial information equivalent martingale measure (PIEMM). This equivalence result is proved in a constructive way by relying on maximum principles for stochastic control problems under partial information. We then characterize a global notion of market viability in terms of partial information local martingale deflators (PILMDs). We illustrate our results by means of a simple example.

Full work available at URL: https://arxiv.org/abs/1302.4254

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zbMATH Keywords

jump diffusionmaximum principlebackward stochastic differential equationpartial informationutility maximizationoptimal portfoliomartingale deflatorviabilitymartingale measuresfinancial market model

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Diffusion processes (60J60) Measures of information, entropy (94A17) Random measures (60G57) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30) Stochastic models in economics (91B70) Financial applications of other theories (91G80) Optimal stochastic control (93E20)

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Cited In (4)

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• Optimal investment with intermediate consumption under no unbounded profit with bounded risk
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