Journal of Applied Probability

Partially informed investors: hedging in an incomplete market with default

P. Tardelli

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In a defaultable market, an investor trades having only partial information about the behavior of the market. Taking into account the intraday stock movements, the risky asset prices are modelled by marked point processes. Their dynamics depend on an unobservable process, representing the amount of news reaching the market. This is a marked point process, which may have common jump times with the risky asset price processes. The problem of hedging a defaultable claim is studied. In order to discuss all these topics, in this paper we examine stochastic control problems using backward stochastic differential equations (BSDEs) and filtering techniques. The goal of this paper is to construct a sequence of functions converging to the value function, each of these is the unique solution of a suitable BSDE.

Article information

J. Appl. Probab., Volume 52, Number 3 (2015), 718-735.

First available in Project Euclid: 22 October 2015

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Mathematical Reviews number (MathSciNet)

Zentralblatt MATH identifier

Primary: 49L20: Dynamic programming method
Secondary: 93E11: Filtering [See also 60G35] 93E03: Stochastic systems, general

Optimal investment exponential utility default time dynamic programming backward stochastic differential equation filtering


Tardelli, P. Partially informed investors: hedging in an incomplete market with default. J. Appl. Probab. 52 (2015), no. 3, 718--735. doi:10.1239/jap/1445543842.

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