A Benchmark Approach to Risk-Minimization under Partial Information

Claudia Ceci, Katia Colaneri and Alessandra Cretarola

Papers from arXiv.org

Abstract: In this paper we study a risk-minimizing hedging problem for a semimartingale incomplete financial market where d+1 assets are traded continuously and whose price is expressed in units of the num\'{e}raire portfolio. According to the so-called benchmark approach, we investigate the (benchmarked) risk-minimizing strategy in the case where there are restrictions on the available information. More precisely, we characterize the optimal strategy as the integrand appearing in the Galtchouk-Kunita-Watanabe decomposition of the benchmarked claim under partial information and provide its description in terms of the integrands in the classical Galtchouk-Kunita-Watanabe decomposition under full information via dual predictable projections. Finally, we apply the results in the case of a Markovian jump-diffusion driven market model where the assets prices dynamics depend on a stochastic factor which is not observable by investors.

Date: 2013-07
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (1)

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Journal Article: A benchmark approach to risk-minimization under partial information (2014)
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