A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information
Pricing of Securities
2014-06-18 v1 Mathematical Finance
Abstract
A one-factor asset pricing model with an Ornstein--Uhlenbeck process as its state variable is studied under partial information: the mean-reverting level and the mean-reverting speed parameters are modeled as hidden/unobservable stochastic variables. No-arbitrage pricing formulas for derivative securities written on a liquid asset and exponential utility indifference pricing formulas for derivative securities written on an illiquid asset are presented. Moreover, a conditionally linear filtering result is introduced to compute the pricing/hedging formulas and the Bayesian estimators of the hidden variables.
Cite
@article{arxiv.1406.4275,
title = {A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information},
author = {Takashi Kato and Jun Sekine and Hiromitsu Yamamoto},
journal= {arXiv preprint arXiv:1406.4275},
year = {2014}
}
Comments
21 pages