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Arbitrage and utility maximization in market models with an insider

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  • Ngoc Huy Chau
  • Wolfgang Runggaldier
  • Peter Tankov

Abstract

We study arbitrage opportunities, market viability and utility maximization in market models with an insider. Assuming that an economic agent possesses from the beginning an additional information in the form of a random variable G, which only becomes known to the ordinary agents at date T, we give criteria for the No Unbounded Profits with Bounded Risk property to hold, characterize optimal arbitrage strategies, and prove duality results for the utility maximization problem faced by the insider. Examples of markets satisfying NUPBR yet admitting arbitrage opportunities are provided for both atomic and continuous random variables G.

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  • Ngoc Huy Chau & Wolfgang Runggaldier & Peter Tankov, 2016. "Arbitrage and utility maximization in market models with an insider," Papers 1608.02068, arXiv.org, revised Sep 2016.
    • Handle: RePEc:arx:papers:1608.02068
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    References listed on IDEAS

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    Cited by:

    1. Karen Grigorian & Robert A. Jarrow, 2023. "Enlargement of Filtrations: An Exposition of Core Ideas with Financial Examples," Papers 2303.03573, arXiv.org.

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