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Structure conditions under progressively...
Choulli, Tahir...

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Structure conditions under progressively added information by Choulli, Tahir ( Author )
Lemonjar Open Access
Australian National University
01-09-2023
It has been understood that the "local" existence of the Markowitz' optimal portfolio or the solution to the local-risk minimization problem is guaranteed by some specific mathematical structures on the underlying assets price processes known in the literature as "{\it Structure Conditions}". In this paper, we consider a semi-martingale market model, and an arbitrary random time that is not adapted to the information flow of the market model. This random time may model the default time of a firm, the death time of an insured, or any the occurrence time of an event that might impact the market model somehow. By adding additional uncertainty to the market model, via this random time, the {\it structures conditions} may fail and hence the Markowitz's optimal portfolio and other quadratic-optimal portfolios might fail to exist. Our aim is to investigate the impact of this random time on the structures conditions from different perspectives. Our analysis allows us to conclude that under some mild assumptions on the market model and the random time, these structures conditions will remain valid on the one hand. Furthermore, we provide two examples illustrating the importance of these assumptions. On the other hand, we describe the random time models for which these structure conditions are preserved for any market model. These results are elaborated separately for the two contexts of stopping with the random time and incorporating totally a specific class of random times respectively.
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Article
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29.34 KB
English
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MYR 0.01
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http://arxiv.org/abs/1403.3459
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