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Pricing For Geometric Marked Point Processes Under Partial Information: Entropy Approach

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  • CLAUDIA CECI

    (Dipartimento di Scienze, Facolta' di Economia Universita' di Chieti-Pescara, I-65127-Pescara, Italy)

  • ANNA GERARDI

    (Dipartimento di Ingegneria Elettrica, Facolta' di Ingegneria Universita' dell'Aquila, I-67100-L'Aquila, Italy)

Abstract

The problem of the arbitrage-free pricing of a European contingent claim B is considered in a general model for intraday stock price movements in the case of partial information. The dynamics of the risky asset price is described through a marked point process Y, whose local characteristics depend on some unobservable jump diffusion process X. The processes Y and X may have common jump times, which means that the trading activity may affect the law of X and could be also related to the presence of catastrophic events. Risk-neutral measures are characterized and in particular, the minimal entropy martingale measure is studied. The problem of pricing under restricted information is discussed, and the arbitrage-free price of the claim B w.r.t. the minimal entropy martingale measure is computed by using filtering techniques.

Suggested Citation

  • Claudia Ceci & Anna Gerardi, 2009. "Pricing For Geometric Marked Point Processes Under Partial Information: Entropy Approach," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 179-207.
    • Handle: RePEc:wsi:ijtafx:v:12:y:2009:i:02:n:s0219024909005191
    DOI: 10.1142/S0219024909005191
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    References listed on IDEAS

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    1. Yuri M. Kabanov & Christophe Stricker, 2002. "On the optimal portfolio for the exponential utility maximization: remarks to the six‐author paper," Mathematical Finance, Wiley Blackwell, vol. 12(2), pages 125-134, April.
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    Cited by:

    1. Ceci, Claudia & Colaneri, Katia & Cretarola, Alessandra, 2014. "A benchmark approach to risk-minimization under partial information," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 129-146.
    2. Claudia Ceci & Anna Gerardi, 2011. "Utility indifference valuation for jump risky assets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 34(2), pages 85-120, November.
    3. Mauricio Junca & Rafael Serrano, 2014. "Utility maximization in pure-jump models driven by marked point processes and nonlinear wealth dynamics," Papers 1411.1103, arXiv.org, revised Sep 2015.
    4. Claudia Ceci & Katia Colaneri & Alessandra Cretarola, 2013. "Local risk-minimization under restricted information to asset prices," Papers 1312.4385, arXiv.org, revised Nov 2014.

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