Lévy Random Bridges and the Modelling of Financial Information

Hoyle, E; Hughston, L P and Macrina, A. 2011. Lévy Random Bridges and the Modelling of Financial Information. Stochastic Processes and their Applications, 121(4), pp. 856-884. ISSN 0304-4149 [Article]

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Abstract or Description

The information-based asset-pricing framework of Brody–Hughston–Macrina (BHM) is extended to include a wider class of models for market information. To model the information flow, we introduce a class of processes called Lévy random bridges (LRBs), generalising the Brownian bridge and gamma bridge information processes of BHM. Given its terminal value at , an LRB has the law of a Lévy bridge. We consider an asset that generates a cash-flow at . The information about is modelled by an LRB with terminal value . The price process of the asset is worked out, along with the prices of options.

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Lévy processes, Lévy bridges, Information-based asset pricing, Option pricing, Non-linear filtering theory

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6 December 2010Accepted
13 December 2010Published Online
April 2011Published

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22 Feb 2022 13:25

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22 Feb 2022 13:25

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Yes, this version has been peer-reviewed.



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