On mean-variance hedging under partial observations and terminal wealth constraints

DOI10.1142/S0219024917500315MaRDI QIDQ5357516zbMATHOpenAlexFDO

Authors Vitalii Makogin, Alexander Melnikov, Yuliya S. Mishura

Publication date 8 September 2017

Published in International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1704.06550

zbMATH Keywords

geometric Brownian motionpartial informationmean-variance hedgingstochastic derivativeClark-Ocone representationobservable and unobservable contingent claimssemi-martingale approach

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Portfolio theory (91G10) Brownian motion (60J65) Generalizations of martingales (60G48)

Abstract: In the paper, a mean-square minimization problem under terminal wealth constraint with partial observations is studied. The problem is naturally connected to the mean-variance hedging problem under incomplete information. A new approach to solving this problem is proposed. The paper provides a solution when the underlying pricing process is a square-integrable semimartingale. The proposed method for the study is based on the martingale representation. In special cases, the Clark-Ocone representation can be used to obtain explicit solutions. The results and the method are illustrated and supported by example with two correlated geometric Brownian motions.

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Cites work

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Cited in

(6)

• DYNAMIC MEAN–VARIANCE OPTIMIZATION PROBLEMS WITH DETERMINISTIC INFORMATION
• Making mean-variance hedging implementable in a partially observable market
• Mean-Variance Hedging Under Partial Information
• HEDGING UNDER GAMMA CONSTRAINTS BY OPTIMAL STOPPING AND FACE-LIFTING
• A comonotonic approximation to optimal terminal wealth under a multivariate Merton model with correlated jump risk
• MEAN-VARIANCE HEDGING FOR PARTIALLY OBSERVED DRIFT PROCESSES

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