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Monte Carlo Derivative Pricing With Partial Information In A Class Of Doubly Stochastic Poisson Processes With Marks

Author

Listed:
  • SILVIA CENTANNI

    (Department of Economics, University of Verona, Via dell'Artigliere 19, 37129 Verona, Italy)

  • MARCO MINOZZO

    (Department of Economics, University of Verona, Via dell'Artigliere 19, 37129 Verona, Italy)

Abstract

To model intraday stock price movements we propose a class of marked doubly stochastic Poisson processes, whose intensity process can be interpreted in terms of the effect of information release on market activity. Assuming a partial information setting in which market agents are restricted to observe only the price process, a filtering algorithm is applied to compute, by Monte Carlo approximation, contingent claim prices, when the dynamics of the price process is given under a martingale measure. In particular, conditions for the existence of the minimal martingale measure Q are derived, and properties of the model under Q are studied.

Suggested Citation

  • Silvia Centanni & Marco Minozzo, 2012. "Monte Carlo Derivative Pricing With Partial Information In A Class Of Doubly Stochastic Poisson Processes With Marks," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 15(03), pages 1-22.
    • Handle: RePEc:wsi:ijtafx:v:15:y:2012:i:03:n:s0219024912500185
    DOI: 10.1142/S0219024912500185
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    Keywords

    Minimal martingale measure; news arrival; marked point process; nonlinear filtering; reversible jump Markov chain Monte Carlo; ultra-high frequency data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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