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Marginal utility-based hedging of claims on non-traded assets with partial information

Abstract:

We examine optimal hedging of a claim on a non-traded asset, using a correlated traded asset, when one does not know with certainty the values of the asset price drifts. In this partial information setting, the uncertain parameters are considered as random variables. We filter the drifts from price observations, updating a chosen prior distribution. The result is an effective full information model with random drift parameters. Using a dual approach, we derive representations for the indiffer...

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Michael Monoyios More by this author
Publication date:
2008-07-05
URN:
uuid:be908559-c38c-4048-b3e1-8c264352d8ee
Local pid:
oai:eprints.maths.ox.ac.uk:723

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