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arXiv · 1406.4275

A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information

Takashi Kato·Jun Sekine·Hiromitsu Yamamoto
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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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Takashi Kato, Jun Sekine, Hiromitsu Yamamoto. 2014-06-17. A One-Factor Conditionally Linear Commodity Pricing Model under Partial Information. https://doi.org/10.1007/s10690-014-9182-y

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