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Optional projection under equivalent local martingale measures

Author

Listed:
  • Francesca Biagini

    (Ludwig-Maximilians Universität)

  • Andrea Mazzon

    (Ludwig-Maximilians Universität)

  • Ari-Pekka Perkkiö

    (Ludwig-Maximilians Universität)

Abstract

We study optional projections of G ${\mathbb{G}}$ -adapted strict local martingales on a smaller filtration F ${\mathbb{F}}$ under changes of equivalent martingale measures. General results are provided as well as a detailed analysis of two specific examples given by the inverse Bessel process and a class of stochastic volatility models. This analysis contributes to clarify the absence of arbitrage opportunities of market models under restricted information.

Suggested Citation

  • Francesca Biagini & Andrea Mazzon & Ari-Pekka Perkkiö, 2023. "Optional projection under equivalent local martingale measures," Finance and Stochastics, Springer, vol. 27(2), pages 435-465, April.
    • Handle: RePEc:spr:finsto:v:27:y:2023:i:2:d:10.1007_s00780-023-00503-3
    DOI: 10.1007/s00780-023-00503-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Local martingale; Optional projection; Local martingale measure; Filtration shrinkage;
    All these keywords.

    JEL classification:

    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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