Martingale representation in progressive enlargement by the reference filtration of a semimartingale: a note on the multidimensional case
arXiv:1609.09701 · doi:10.1080/17442508.2018.1533015
Abstract
Let X and Y be an m-dimensional F-semimartingale and an n-dimensional H-semimartingale respectively on the same probability space, both enjoying the strong predictable representation property. We propose a martingale representation result under the probability measure P for the square integrable G-martingales, where G is the union of F and H. As a first application we identify the biggest possible value of the multiplicity in the sense of Davis and Varaiya of the union of F1,..., Fd, where, fixed i in (1,...,d), Fi is the reference filtration of a real martingale Mi, which enjoys the Fi-predictable representation property. A second application falls into the framework of credit risk modeling and in particular into the study of the progressive enlargement of the market filtration by a default time. More precisely, when the risky asset price is a multidimensional semimartingale enjoying the strong predictable representation property and the default time satisfies the density hypothesis, we present a new proof of the analogous of the classical theorem of Kusuoka.