Growth Optimal Portfolio for unobservable Markov-modulated markets

I. Venkat Appal Raju and N. Selvaraju

International Journal of Mathematics in Operational Research, 2012, vol. 4, issue 1, 31-40

Abstract: The paper studies the benchmark approach for pricing and hedging in incomplete markets where the investor has to filter the incomplete information. We consider a jump diffusion Markov modulated market model and derive the Growth Optimal Portfolio (GOP), by using the stochastic control method. Using GOP, we price and hedge European options where the existence of the equivalent martingale measure is not necessary.

Keywords: ?nancial markets; jump diffusions; contingent claims; pricing; hedging; GOP; growth optimal portfolio; stochastic control; incomplete information; Markov modulated markets. (search for similar items in EconPapers)
Date: 2012
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