Risk Minimizing Hedging in a Partially Observed High Frequency Data Model: a Filtering Approach

Abstract

Risk-minimizing hedging strategies for contingent claims are studied in a general model for intraday stock price movements in the case of partial information. The dynamics of the risky asset price S is modeled as a geometric marked point process whose local characteristics depend on some unobservable process X, which may have common jump times with S. Assuming that the price S is modeled directly under a martingale measure, the computation of the risk-minimizing hedging strategy when the hedger is restricted to observing past asset prices leads to a filtering problem.

[DOI: 10.1685/CSC06043] About DOI