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The value of insider information for super-replication with quadratic transaction costs

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  • Dolinsky, Yan
  • Zouari, Jonathan

Abstract

We study super-replication of European contingent claims in an illiquid market with insider information. Illiquidity is captured by quadratic transaction costs and insider information is modeled by an investor who can peek into the future. Our main result describes the scaling limit of the super-replication prices when the number of trading periods increases to infinity. Moreover, the scaling limit gives us the asymptotic value of being an insider.

Suggested Citation

  • Dolinsky, Yan & Zouari, Jonathan, 2021. "The value of insider information for super-replication with quadratic transaction costs," Stochastic Processes and their Applications, Elsevier, vol. 131(C), pages 394-416.
    • Handle: RePEc:eee:spapps:v:131:y:2021:i:c:p:394-416
    DOI: 10.1016/j.spa.2020.09.016
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    References listed on IDEAS

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    Cited by:

    1. Peter Bank & Yan Dolinsky & Mikl'os R'asonyi, 2021. "What if we knew what the future brings? Optimal investment for a frontrunner with price impact," Papers 2108.04291, arXiv.org, revised May 2022.

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