Monte Carlo derivative pricing with partial information in a class of doubly stochastic Poisson processes with marks
AbstractTo 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 InfoPaper provided by University of Verona, Department of Economics in its series Working Papers with number 22/2010.
Date of creation: Dec 2010
Date of revision:
Minimal martingale measure; News arrival; Marked point process; Nonlinear filtering; Reversible jump Markov chain Monte Carlo; Ultra high frequency data;
Other versions of this item:
- 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 1250018-1-1.
- 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
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-03 (All new papers)
- NEP-MST-2011-01-03 (Market Microstructure)
- NEP-ORE-2011-01-03 (Operations Research)
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