Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/65293 
Authors: 
Year of Publication: 
2002
Series/Report no.: 
SFB 373 Discussion Paper No. 2002,14
Publisher: 
Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes, Berlin
Abstract: 
We consider simple models of financial markets with regular traders and insiders possessing some extra information hidden in a random variable which is accessible to the regular trader only at the end of the trading interval. The problems we focus on are the calculation of the additional utility of the insider and a study of his free lunch possibilities. The information drift, i.e. the drift to eliminate in order to preserve the martingale property in the insider's filtration, turns out to be the crucial quantity needed to answer these questions. It is most elegantly described by the logarithmic Malliavin trace of the conditional laws of the insider information with respect to the filtration of the regular trader. Several examples are given to illustrate additional utility and free lunch possibilities. In particular, if the insider has advance knowledge of the maximal stock price process, given by a regular diffusion, arbitrage opportunities exist.
Subjects: 
insider trading
enlargement of filtrations
Malliavin's calculus
free lunch
arbitrage
equivalent martingale measure
Bessel process
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
241.12 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.