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

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  • 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.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 15 (2012)
Issue (Month): 03 ()
Pages: 1250018-1-1250018-22

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Handle: RePEc:wsi:ijtafx:v:15:y:2012:i:03:p:1250018-1-1250018-22

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Related research

Keywords: Minimal martingale measure; news arrival; marked point process; nonlinear filtering; reversible jump Markov chain Monte Carlo; ultra-high frequency data;

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