A benchmark approach to filtering in finance

Publication Type:
Journal Article
Asia-Pacific Financial Markets, 2005, 11 (1), pp. 79 - 105
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The paper propsoed the use of the growth optimal portfolio for pricing and hedging in imcomplete 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 iformation is measured.
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