Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/62752
Authors: 
Imkeller, Peter
Year of Publication: 
2001
Series/Report no.: 
Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2001,62
Abstract: 
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.
Subjects: 
Brownian motion
diffusion
free lunch
arbitrage
financial markets
insider
progressive enlargement of filtrations
honest time
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





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