Martingale representation for Poisson processes with applications to minimal variance hedging

DOI10.1016/J.SPA.2011.03.014zbMATH Open1219.60050arXiv1001.3972OpenAlexW2116082192MaRDI QIDQ550168FDOQ550168

Authors: Günter Last, Mathew D. Penrose 

Publication date: 8 July 2011

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: We consider a Poisson process $eta$ on a measurable space $(BY,mathcalY)$ equipped with a partial ordering, assumed to be strict almost everwhwere with respect to the intensity measure $lambda$ of $eta$. We give a Clark-Ocone type formula providing an explicit representation of square integrable martingales (defined with respect to the natural filtration associated with $eta$), which was previously known only in the special case, when $lambda$ is the product of Lebesgue measure on $R_{+}$ and a $sigma$-finite measure on another space $BX$. Our proof is new and based on only a few basic properties of Poisson processes and stochastic integrals. We also consider the more general case of an independent random measure in the sense of It^o of pure jump type and show that the Clark-Ocone type representation leads to an explicit version of the Kunita-Watanabe decomposition of square integrable martingales. We also find the explicit minimal variance hedge in a quite general financial market driven by an independent random measure.

Full work available at URL: https://arxiv.org/abs/1001.3972

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zbMATH Keywords

Malliavin calculusPoisson processmartingale representationClark-Ocone formuladerivative operatorindependent random measureKunita-Watanabe decompositionminimal variance hedge

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Martingales with continuous parameter (60G44) Financial applications of other theories (91G80)

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Cited In (9)

• Stochastic Analysis for Poisson Processes
• Explicit formulas for the minimal variance hedging strategy in a martingale case
• Poisson process Fock space representation, chaos expansion and covariance inequalities
• The random connection model and functions of edge-marked Poisson processes: second order properties and normal approximation
• Functional inequalities for marked point processes
• \(L_{2}\)-variation of Lévy driven BSDEs with non-smooth terminal conditions
• Malliavin calculus for marked binomial processes and applications
• Time-dynamic evaluations under non-monotone information generated by marked point processes
• Transportation inequalities for non-globally dissipative SDEs with jumps via Malliavin calculus and coupling

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