The F\"ollmer-Schweizer decomposition under incomplete information

Claudia Ceci, Katia Colaneri and Alessandra Cretarola

Papers from arXiv.org

Abstract: In this paper we study the F\"ollmer-Schweizer decomposition of a square integrable random variable $\xi$ with respect to a given semimartingale $S$ under restricted information. Thanks to the relationship between this decomposition and that of the projection of $\xi$ with respect to the given information flow, we characterize the integrand appearing in the F\"ollmer-Schweizer decomposition under partial information in the general case where $\xi$ is not necessarily adapted to the available information level. For partially observable Markovian models where the dynamics of $S$ depends on an unobservable stochastic factor $X$, we show how to compute the decomposition by means of filtering problems involving functions defined on an infinite-dimensional space. Moreover, in the case of a partially observed jump-diffusion model where $X$ is described by a pure jump process taking values in a finite dimensional space, we compute explicitly the integrand in the F\"ollmer-Schweizer decomposition by working with finite dimensional filters.

Date: 2015-11, Revised 2016-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://arxiv.org/pdf/1511.05465 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1511.05465

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators (help@arxiv.org).