Random times at which insiders can have free lunches
We consider models of time continuous financial markets with a regular trader and an insider who are able to invest into one risky asset. The insider's additional knowledge consists in his ability to stop a random time which is inaccessible to the regular trader, such as the last passage of a certain level before maturity by some stock price process, or the time at which the stock price reaches its maximum during the trading interval. We show that under very mild assumptions on the coefficients of the diffusion process describing these price processes the information drift caused by the additional knowledge of the insider cannot be eliminated by an equivalent change of probability measure. As a consequence, all our models allow the insider to have free lunches with vanishing risk, or even to exercise arbitrage.
|Date of creation:||2001|
|Contact details of provider:|| Postal: Spandauer Str. 1,10178 Berlin|
Web page: http://www.wiwi.hu-berlin.de/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:zbw:sfb373:200162. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.