The Föllmer–Schweizer decomposition under incomplete information

DOI10.1080/17442508.2017.1290094zbMATH Open1394.60055arXiv1511.05465OpenAlexW3106215755MaRDI QIDQ4584693FDOQ4584693

Alessandra Cretarola, Claudia Ceci, Katia Colaneri

Publication date: 4 September 2018

Published in: Stochastics (Search for Journal in Brave)

Abstract: In this paper we study the F"ollmer-Schweizer decomposition of a square integrable random variable $xi$ with respect to a given semimartingale $S$ under restricted information. Thanks to the relationship between this decomposition and that of the projection of $xi$ with respect to the given information flow, we characterize the integrand appearing in the F"ollmer-Schweizer decomposition under partial information in the general case where $xi$ is not necessarily adapted to the available information level. For partially observable Markovian models where the dynamics of $S$ depends on an unobservable stochastic factor $X$, we show how to compute the decomposition by means of filtering problems involving functions defined on an infinite-dimensional space. Moreover, in the case of a partially observed jump-diffusion model where $X$ is described by a pure jump process taking values in a finite dimensional space, we compute explicitly the integrand in the F"ollmer-Schweizer decomposition by working with finite dimensional filters.

Full work available at URL: https://arxiv.org/abs/1511.05465

zbMATH Keywords

partial informationnonlinear filteringFöllmer-Schweizer decomposition

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Stochastic integrals (60H05)

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Cited In (4)

• Föllmer-Schweizer decomposition and mean-variance hedging for general claims
• LOCAL RISK MINIMIZATION OF CONTINGENT CLAIMS SIMULTANEOUSLY EXPOSED TO ENDOGENOUS AND EXOGENOUS DEFAULT TIMES
• DYNAMIC MEAN–VARIANCE OPTIMIZATION PROBLEMS WITH DETERMINISTIC INFORMATION
• Hedging the Risk of Delayed Data in Defaultable Markets

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