Stochastic integration with respect to arbitrary collections of continuous semimartingales and applications to Mathematical Finance

TL;DR

This paper develops a general framework for defining stochastic integrals with respect to arbitrary collections of continuous semimartingales, extending classical results to infinite-dimensional settings relevant for Mathematical Finance.

Contribution

It introduces a novel construction of stochastic integrals over arbitrary index sets without assumptions, linking integrand spaces to covariation structures, and applies this to infinite-asset financial models.

Findings

Constructed stochastic integrals via finite-dimensional approximation.

Characterized integrals through covariation structures.

Extended classical financial results to infinite-asset models.

Abstract

Stochastic integrals are defined with respect to a collection $P = (P_i; \, i \in I)$ of continuous semimartingales, imposing no assumptions on the index set $I$ and the subspace of $\mathbb{R}^I$ where $P$ takes values. The integrals are constructed though finite-dimensional approximation, identifying the appropriate local geometry that allows extension to infinite dimensions. For local martingale integrators, the resulting space $\mathsf{S} (P)$ of stochastic integrals has an operational characterisation via a corresponding set of integrands $\mathsf{R} (C)$, constructed with only reference the covariation structure $C$ of $P$. This bijection between $\mathsf{R} (C)$ and the (closed in the semimartingale topology) set $\mathsf{S} (P)$ extends to families of continuous semimartingale integrators for which the drift process of $P$ belongs to $\mathsf{R} (C)$. In the context of infinite-asset models in Mathematical Finance, the latter structural condition is equivalent to a certain natural form of market viability. The enriched class of wealth processes via extended stochastic integrals leads to exact analogues of optional decomposition and hedging duality as the finite-asset case. A corresponding characterisation of market completeness in this setting is provided.