Local risk-minimization under restricted information on asset prices

DOI10.1214/EJP.V20-3204MaRDI QIDQ894154zbMATH OpenOpenAlexFDO

Authors Claudia Ceci, Alessandra Cretarola, Katia Colaneri

Publication date 27 November 2015

Published in Electronic Journal of Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1312.4385

zbMATH Keywords

filteringpartial informationlocal risk-minimizationMarkovian processessemimartingale financial market

Mathematics Subject Classification ID

Diffusion processes (60J60) Generalizations of martingales (60G48) Continuous-time Markov processes on general state spaces (60J25)

Abstract: In this paper we investigate the local risk-minimization approach for a semimartingale financial market where there are restrictions on the available information to agents who can observe at least the asset prices. We characterize the optimal strategy in terms of suitable decompositions of a given contingent claim, with respect to a filtration representing the information level, even in presence of jumps. Finally, we discuss some practical examples in a Markovian framework and show that the computation of the optimal strategy leads to filtering problems under the real-world probability measure and under the minimalmartingale measure.

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Cited in

(15)

• Minimization of locally-quadratic risk on financial markets with two parameters
• Local risk-minimization for defaultable claims with recovery process
• Hedging of unit-linked life insurance contracts with unobservable mortality hazard rate via local risk-minimization
• Unit-linked life insurance policies: optimal hedging in partially observable market models
• Risk Minimization for a Filtering Micromovement Model of Asset Price
• Hedging the risk of delayed data in defaultable markets
• Pricing and hedging of general rating-sensitive claims in a jump-diffusion market model in the presence of stochastic factors
• GKW representation theorem under restricted information. An application to risk-minimization
• Numerical analysis of a time discretized method for nonlinear filtering problem with Lévy process observations
• A benchmark approach to risk-minimization under partial information
• Local risk minimization and numéraire
• Local risk minimization of contingent claims simultaneously exposed to endogenous and exogenous default times
• Locally risk-minimizing hedging of counterparty risk for portfolio of credit derivatives
• Locally risk-minimizing strategies in discrete time incomplete financial markets
• The Föllmer–Schweizer decomposition under incomplete information

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