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Chaotic and predictable representations for Lévy processes

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  • Nualart, David
  • Schoutens, Wim

Abstract

The only normal martingales which posses the chaotic representation property and the weaker predictable representation property and which are at the same time also Lévy processes, are in essence Brownian motion and the compensated Poisson process. For a general Lévy process (satisfying some moment conditions), we introduce the power jump processes and the related Teugels martingales. Furthermore, we orthogonalize the Teugels martingales and show how their orthogonalization is intrinsically related with classical orthogonal polynomials. We give a chaotic representation for every square integral random variable in terms of these orthogonalized Teugels martingales. The predictable representation with respect to the same set of orthogonalized martingales of square integrable random variables and of square integrable martingales is an easy consequence of the chaotic representation.

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  • Nualart, David & Schoutens, Wim, 2000. "Chaotic and predictable representations for Lévy processes," Stochastic Processes and their Applications, Elsevier, vol. 90(1), pages 109-122, November.
    • Handle: RePEc:eee:spapps:v:90:y:2000:i:1:p:109-122
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    References listed on IDEAS

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    1. Dickson, David C. M. & Waters, Howard R., 1996. "Reinsurance and ruin," Insurance: Mathematics and Economics, Elsevier, vol. 19(1), pages 61-80, December.
    2. Dufresne, F. & Gerber, H. U., 1993. "The probability of ruin for the Inverse Gaussian and related processes," Insurance: Mathematics and Economics, Elsevier, vol. 12(1), pages 9-22, February.
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    Cited by:

    1. Jamshidian, Farshid, 2008. "On the combinatorics of iterated stochastic integrals," MPRA Paper 7165, University Library of Munich, Germany.
    2. Ankirchner, Stefan, 2008. "On filtration enlargements and purely discontinuous martingales," Stochastic Processes and their Applications, Elsevier, vol. 118(9), pages 1662-1678, September.
    3. Masafumi Hayashi, 2010. "Coefficients of Asymptotic Expansions of SDE with Jumps," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 17(4), pages 373-389, December.
    4. Mitsui, Ken-ichi & Tabata, Yoshio, 2008. "A stochastic linear-quadratic problem with Lévy processes and its application to finance," Stochastic Processes and their Applications, Elsevier, vol. 118(1), pages 120-152, January.
    5. Klimsiak, Tomasz, 2015. "Reflected BSDEs on filtered probability spaces," Stochastic Processes and their Applications, Elsevier, vol. 125(11), pages 4204-4241.
    6. Langovoy, Mikhail, 2011. "Algebraic polynomials and moments of stochastic integrals," Statistics & Probability Letters, Elsevier, vol. 81(6), pages 627-631.
    7. Decreusefond, Laurent & Halconruy, Hélène, 2019. "Malliavin and Dirichlet structures for independent random variables," Stochastic Processes and their Applications, Elsevier, vol. 129(8), pages 2611-2653.
    8. Auguste Aman, 2012. "Reflected Generalized Backward Doubly SDEs Driven by Lévy Processes and Applications," Journal of Theoretical Probability, Springer, vol. 25(4), pages 1153-1172, December.
    9. Lorenzo Mercuri & Andrea Perchiazzo & Edit Rroji, 2020. "Finite Mixture Approximation of CARMA(p,q) Models," Papers 2005.10130, arXiv.org, revised May 2020.
    10. Evelina Shamarova & Rui S'a Pereira, 2013. "Hedging in a market with jumps - an FBSDE approach," Papers 1309.2211, arXiv.org, revised Aug 2017.
    11. Schoutens, Wim & Studer, Michael, 2003. "Short-term risk management using stochastic Taylor expansions under Lévy models," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 173-188, August.
    12. Niu, Liqun, 2008. "Some stability results of optimal investment in a simple Lévy market," Insurance: Mathematics and Economics, Elsevier, vol. 42(1), pages 445-452, February.
    13. El Otmani, Mohamed, 2008. "BSDE driven by a simple Lévy process with continuous coefficient," Statistics & Probability Letters, Elsevier, vol. 78(11), pages 1259-1265, August.
    14. Mohamed Otmani, 2009. "Reflected BSDE Driven by a Lévy Process," Journal of Theoretical Probability, Springer, vol. 22(3), pages 601-619, September.
    15. Horst Osswald, 2009. "A Smooth Approach to Malliavin Calculus for Lévy Processes," Journal of Theoretical Probability, Springer, vol. 22(2), pages 441-473, June.
    16. Fan, Xiliang & Ren, Yong & Zhu, Dongjin, 2010. "A note on the doubly reflected backward stochastic differential equations driven by a Lévy process," Statistics & Probability Letters, Elsevier, vol. 80(7-8), pages 690-696, April.
    17. Colino, Jesús P., 2008. "Weak convergence in credit risk," DES - Working Papers. Statistics and Econometrics. WS ws085518, Universidad Carlos III de Madrid. Departamento de Estadística.
    18. Choe, Hi Jun & Lee, Ji Min & Lee, Jung-Kyung, 2018. "Malliavin calculus for subordinated Lévy process," Chaos, Solitons & Fractals, Elsevier, vol. 116(C), pages 392-401.
    19. Kim, Mun-Chol & O, Hun, 2021. "A general comparison theorem for reflected BSDEs," Statistics & Probability Letters, Elsevier, vol. 173(C).
    20. Solé, Josep Lluís & Utzet, Frederic & Vives, Josep, 2007. "Canonical Lévy process and Malliavin calculus," Stochastic Processes and their Applications, Elsevier, vol. 117(2), pages 165-187, February.
    21. Davis, Mark H.A. & Johansson, Martin P., 2006. "Malliavin Monte Carlo Greeks for jump diffusions," Stochastic Processes and their Applications, Elsevier, vol. 116(1), pages 101-129, January.

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