IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1312.4385.html
   My bibliography  Save this paper

Local risk-minimization under restricted information to asset prices

Author

Listed:
  • Claudia Ceci
  • Katia Colaneri
  • Alessandra Cretarola

Abstract

In this paper we investigate the local risk-minimization approach for a semimartingale financial market where there are restrictions on the available information to agents who can observe at least the asset prices. We characterize the optimal strategy in terms of suitable decompositions of a given contingent claim, with respect to a filtration representing the information level, even in presence of jumps. Finally, we discuss some practical examples in a Markovian framework and show that the computation of the optimal strategy leads to filtering problems under the real-world probability measure and under the minimalmartingale measure.

Suggested Citation

  • Claudia Ceci & Katia Colaneri & Alessandra Cretarola, 2013. "Local risk-minimization under restricted information to asset prices," Papers 1312.4385, arXiv.org, revised Nov 2014.
    • Handle: RePEc:arx:papers:1312.4385
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1312.4385
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Claudia Ceci, 2012. "Utility Maximization With Intermediate Consumption Under Restricted Information For Jump Market Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 15(06), pages 1-34.
    2. Rüdiger Frey & Wolfgang Runggaldier, 2010. "Pricing credit derivatives under incomplete information: a nonlinear-filtering approach," Finance and Stochastics, Springer, vol. 14(4), pages 495-526, December.
    3. 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.
    4. Rüdiger Frey & Thorsten Schmidt, 2012. "Pricing and hedging of credit derivatives via the innovations approach to nonlinear filtering," Finance and Stochastics, Springer, vol. 16(1), pages 105-133, January.
    5. Martin Schweizer, 1994. "Risk‐Minimizing Hedging Strategies Under Restricted Information," Mathematical Finance, Wiley Blackwell, vol. 4(4), pages 327-342, October.
    6. Claudia Ceci & Anna Gerardi, 2006. "A Model For High Frequency Data Under Partial Information: A Filtering Approach," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 9(04), pages 555-576.
    7. Michael Mania & Marina Santacroce, 2010. "Exponential utility maximization under partial information," Finance and Stochastics, Springer, vol. 14(3), pages 419-448, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olivier Menoukeu-Pamen & Romuald Momeya, 2015. "Local Risk-Minimization Under Markov-Modulated Exponential Lévy Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(05), pages 1-24.
    2. Kevin Fergusson & Eckhard Platen, 2017. "Less-Expensive Valuation of Long Term Annuities Linked to Mortality, Cash and Equity," Papers 1711.02808, arXiv.org.
    3. Claudia Ceci & Katia Colaneri & Alessandra Cretarola, 2015. "The F\"ollmer-Schweizer decomposition under incomplete information," Papers 1511.05465, arXiv.org, revised Mar 2016.
    4. Ceci, Claudia & Colaneri, Katia & Cretarola, Alessandra, 2015. "Hedging of unit-linked life insurance contracts with unobservable mortality hazard rate via local risk-minimization," Insurance: Mathematics and Economics, Elsevier, vol. 60(C), pages 47-60.
    5. Lijun Bo & Agostino Capponi & Claudia Ceci, 2017. "Risk-Minimizing Hedging of Counterparty Risk," Papers 1709.01115, arXiv.org.
    6. Claudia Ceci & Katia Colaneri & Alessandra Cretarola, 2016. "Unit-linked life insurance policies: optimal hedging in partially observable market models," Papers 1608.07226, arXiv.org, revised Dec 2016.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ceci, Claudia & Cretarola, Alessandra & Russo, Francesco, 2014. "BSDEs under partial information and financial applications," Stochastic Processes and their Applications, Elsevier, vol. 124(8), pages 2628-2653.
    2. Claudia Ceci & Katia Colaneri & Alessandra Cretarola, 2015. "The F\"ollmer-Schweizer decomposition under incomplete information," Papers 1511.05465, arXiv.org, revised Mar 2016.
    3. Giorgia Callegaro & Claudia Ceci & Giorgio Ferrari, 2019. "Optimal Reduction of Public Debt under Partial Observation of the Economic Growth," Papers 1901.08356, arXiv.org, revised Jan 2019.
    4. 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.
    5. Ceci, Claudia & Colaneri, Katia & Cretarola, Alessandra, 2015. "Hedging of unit-linked life insurance contracts with unobservable mortality hazard rate via local risk-minimization," Insurance: Mathematics and Economics, Elsevier, vol. 60(C), pages 47-60.
    6. Giorgia Callegaro & Claudia Ceci & Giorgio Ferrari, 2020. "Optimal reduction of public debt under partial observation of the economic growth," Finance and Stochastics, Springer, vol. 24(4), pages 1083-1132, October.
    7. Callegaro, Giorgia & Ceci, Claudia & Ferrari, Giorgio, 2019. "Optimal Reduction of Public Debt under Partial Observation of the Economic Growth," Center for Mathematical Economics Working Papers 608, Center for Mathematical Economics, Bielefeld University.
    8. Prakash Chakraborty & Kiseop Lee, 2022. "Bond Prices Under Information Asymmetry and a Short Rate with Instantaneous Feedback," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 613-634, June.
    9. Branger, Nicole & Kraft, Holger & Meinerding, Christoph, 2014. "Partial information about contagion risk, self-exciting processes and portfolio optimization," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 18-36.
    10. Ceci, Claudia & Colaneri, Katia & Cretarola, Alessandra, 2017. "Unit-linked life insurance policies: Optimal hedging in partially observable market models," Insurance: Mathematics and Economics, Elsevier, vol. 76(C), pages 149-163.
    11. 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.
    12. Kexin Chen & Hoi Ying Wong, 2022. "Duality in optimal consumption--investment problems with alternative data," Papers 2210.08422, arXiv.org, revised Jul 2023.
    13. Matteo Brachetta & Claudia Ceci, 2019. "Optimal Excess-of-Loss Reinsurance for Stochastic Factor Risk Models," Risks, MDPI, vol. 7(2), pages 1-23, May.
    14. Brachetta, M. & Ceci, C., 2020. "A BSDE-based approach for the optimal reinsurance problem under partial information," Insurance: Mathematics and Economics, Elsevier, vol. 95(C), pages 1-16.
    15. Claudia Ceci & Katia Colaneri & Alessandra Cretarola, 2016. "Unit-linked life insurance policies: optimal hedging in partially observable market models," Papers 1608.07226, arXiv.org, revised Dec 2016.
    16. Çetin, Umut, 2012. "On absolutely continuous compensators and nonlinear filtering equations in default risk models," Stochastic Processes and their Applications, Elsevier, vol. 122(11), pages 3619-3647.
    17. Herbertsson, Alexander & Frey, Rüdiger, 2016. "Cds Index Options Under Incomplete Information," Working Papers in Economics 685, University of Gothenburg, Department of Economics.
    18. Robert Elliott & Jia Shen, 2015. "Credit risk and contagion via self-exciting default intensity," Annals of Finance, Springer, vol. 11(3), pages 319-344, November.
    19. Suhan Altay & Katia Colaneri & Zehra Eksi, 2017. "Portfolio optimization for a large investor controlling market sentiment under partial information," Papers 1706.03567, arXiv.org.
    20. 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.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1312.4385. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.