A Benchmark Approach to Filtering in Finance
نویسندگان
چکیده
The paper proposes the use of the growth optimal portfolio for pricing and hedging in incomplete markets when there are unobserved factors that have to be filtered. The proposed filtering framework is applicable also in cases when there does not exist an equivalent risk neutral martingale measure. The reduction of the variance of derivative prices for increasing degrees of available information is measured. 1991 Mathematics Subject Classification: primary 90A09; secondary 60G99, 62P20. JEL Classification: G10, G13
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