Additional utility of insiders with imperfect dynamical information
AbstractIn this paper we consider an insider with privileged information that is affected by an independent noise vanishing as the revelation time approaches. At this time, information is available to every trader. Our financial markets are based on Wiener space. In probabilistic terms we obtain an infinite dimensional extension of Jacod’s theorem to cover cases of progressive enlargement of filtrations. The application of this result gives the semimartingale decomposition of the original Wiener process under the progressively enlarged filtration. As an application we prove that if the rate at which the additional noise in the insider’s information vanishes is slow enough then there is no arbitrage and the additional utility of the insider is finite.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 675.
Date of creation: Apr 2003
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Web page: http://www.econ.upf.edu/
Insider trading; enlargement of filtrations; Malliavin's calculus; utility maximization; arbitrage;
Find related papers by JEL classification:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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- Back, Kerry, 1992. "Insider Trading in Continuous Time," Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
- Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
- Stefan Ankirchner, 2005. "Utility duality under additional information: conditional measures versus filtration enlargements," SFB 649 Discussion Papers SFB649DP2005-029, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Stefan Ankirchner & Steffen Dereich & Peter Imkeller, 2005. "The Shannon Information of Filtrations and the Additional Logarithmic Utility of Insiders," SFB 649 Discussion Papers SFB649DP2005-030, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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