A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information |
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Authors: | Takashi Kato Jun Sekine Hiromitsu Yamamoto |
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Affiliation: | 1. Division of Mathematical Science for Social Systems, Graduate School of Engineering Science, Osaka University, Osaka, Japan
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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. |
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