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Mean-Variance Hedging and Forward-Backward Stochastic Differential Filtering Equations

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  • Guangchen Wang
  • Zhen Wu

Abstract

This paper is concerned with a mean-variance hedging problem with partial information, where the initial endowment of an agent may be a decision and the contingent claim is a random variable. This problem is explicitly solved by studying a linear-quadratic optimal control problem with non-Markov control systems and partial information. Then, we use the result as well as filtering to solve some examples in stochastic control and finance. Also, we establish backward and forward-backward stochastic differential filtering equations which are different from the classical filtering theory introduced by Liptser and Shiryayev (1977), Xiong (2008), and so forth.

Suggested Citation

  • Guangchen Wang & Zhen Wu, 2011. "Mean-Variance Hedging and Forward-Backward Stochastic Differential Filtering Equations," Abstract and Applied Analysis, Hindawi, vol. 2011, pages 1-20, September.
    • Handle: RePEc:hin:jnlaaa:310910
    DOI: 10.1155/2011/310910
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