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Additional utility of insiders with imperfect dynamical information

Author

Listed:
  • José Mª Corcuera
  • Peter Imkeller
  • Arturo Kohatsu
  • David Nualart

Abstract

In 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.

Suggested Citation

  • José Mª Corcuera & Peter Imkeller & Arturo Kohatsu & David Nualart, 2003. "Additional utility of insiders with imperfect dynamical information," Economics Working Papers 675, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:675
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    References listed on IDEAS

    as
    1. Imkeller, Peter & Pontier, Monique & Weisz, Ferenc, 2001. "Free lunch and arbitrage possibilities in a financial market model with an insider," Stochastic Processes and their Applications, Elsevier, vol. 92(1), pages 103-130, March.
    2. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    3. Back, Kerry, 1992. "Insider Trading in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Stefan Ankirchner & Steffen Dereich & Peter Imkeller, 2005. "The Shannon information of filtrations and the additional logarithmic utility of insiders," Papers math/0503013, arXiv.org, revised May 2006.
    3. 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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    More about this item

    Keywords

    Insider trading; enlargement of filtrations; Malliavin's calculus; utility maximization; arbitrage;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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