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Finite utility on financial markets with asymmetric information and structure properties of the price
 

Summary: Finite utility on financial markets with asymmetric
information and structure properties of the price
dynamics
Stefan Ankirchner and Peter Imkeller
Institut f¨ur Mathematik
Humboldt-Universit¨at zu Berlin
Unter den Linden 6
10099 Berlin
Germany
August 27, 2004
Abstract
We consider financial markets with two kinds of small traders: regular traders
who perceive the (continuous) asset price process S through its natural filtration,
and insiders who possess some information advantage which makes the filtrations
through which they experience the evolution of the market richer. We discuss
the link between (NFLVR), the semimartingale property of S viewed from the
agent's perspective, and bounded expected utility. We show that whenever an
agent's expected utility is finite, S is a semimartingale with a Doob-Meyer de-
composition featuring a martingale part and an information drift. The expected
utility gain of an insider with respect to a regular trader is calculated in a com-

  

Source: Ankirchner, Stefan - Institut für Angewandte Mathematik, Universität Bonn

 

Collections: Mathematics