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A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information

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  • Takashi Kato
  • Jun Sekine
  • Hiromitsu Yamamoto

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. Copyright Springer Japan 2014

Suggested Citation

  • Takashi Kato & Jun Sekine & Hiromitsu Yamamoto, 2014. "A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 21(2), pages 151-174, May.
    • Handle: RePEc:kap:apfinm:v:21:y:2014:i:2:p:151-174
    DOI: 10.1007/s10690-014-9182-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity futures/forward; Conditionally linear model ; Partial information; Stochastic convenience yield; Utility indifference pricing; G13; C63;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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