A one-factor conditionally linear commodity pricing model under partial information

DOI10.1007/S10690-014-9182-YMaRDI QIDQ2515786zbMATH OpenOpenAlexFDO

Authors Takashi Kato, Jun Sekine, Hiromitsu Yamamoto

Publication date 6 August 2015

Published in Asia-Pacific Financial Markets (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1406.4275

zbMATH Keywords

commodity futures/forwardconditionally linear modelpartial informationstochastic convenience yieldutility indifference pricing

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: A one-factor asset pricing model with an Ornstein--Uhlenbeck process as its state variable is studied under partial information: the mean-reverting level and the mean-reverting speed parameters are modeled as hidden/unobservable stochastic variables. No-arbitrage pricing formulas for derivative securities written on a liquid asset and exponential utility indifference pricing formulas for derivative securities written on an illiquid asset are presented. Moreover, a conditionally linear filtering result is introduced to compute the pricing/hedging formulas and the Bayesian estimators of the hidden variables.

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Cites work

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Cited in

(1)

• Closed-form solutions via the invariant approach for one-factor commodity models

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