PRICING FOR GEOMETRIC MARKED POINT PROCESSES UNDER PARTIAL INFORMATION: ENTROPY APPROACH

Claudia Ceci and Anna Gerardi ()
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Claudia Ceci: Dipartimento di Scienze, Facolta' di Economia Universita' di Chieti-Pescara, I-65127-Pescara, Italy
Anna Gerardi: Dipartimento di Ingegneria Elettrica, Facolta' di Ingegneria Universita' dell'Aquila, I-67100-L'Aquila, Italy

International Journal of Theoretical and Applied Finance (IJTAF), 2009, vol. 12, issue 02, 179-207

Abstract: The problem of the arbitrage-free pricing of a European contingent claim B is considered in a general model for intraday stock price movements in the case of partial information. The dynamics of the risky asset price is described through a marked point process Y, whose local characteristics depend on some unobservable jump diffusion process X. The processes Y and X may have common jump times, which means that the trading activity may affect the law of X and could be also related to the presence of catastrophic events. Risk-neutral measures are characterized and in particular, the minimal entropy martingale measure is studied. The problem of pricing under restricted information is discussed, and the arbitrage-free price of the claim B w.r.t. the minimal entropy martingale measure is computed by using filtering techniques.

Keywords: Pricing under restricted information; minimal entropy martingale measure; marked point processes; jump-diffusions; filtering (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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DOI: 10.1142/S0219024909005191

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