A Benchmark Approach to Filtering in Finance

Eckhard Platen () and Wolfgang Runggaldier

Asia-Pacific Financial Markets, 2004, vol. 11, issue 1, 79-105

Abstract: The paper proposes the use of the growth optimal portfolio for pricing and hedging in incomplete markets when there are unobserved factors that have to be filtered. The proposed filtering framework is applicable also in cases when there does not exist an equivalent risk neutral martingale measure. The reduction of the variance of derivative prices for increasing degrees of available information is measured. Copyright Springer Science + Business Media, Inc. 2004

Keywords: financial modeling; stochastic filtering; benchmark approach; growth optimal portfolio; fair pricing under partial information (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s10690-005-4301-4

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