The financial value of a weak information on a financial market

Nguyen-Ngoc, L.; Baudoin, Fabrice

doi:10.1007/s00780-003-0116-1

Cited by 21 publications

(26 citation statements)

References 19 publications

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“…2 We now adapt their reasoning and we choose the special distortion on gains T + (p) = p γ , γ ∈ (0, 1], as suggested by the previous Remark 3.1. Intuitively, this concave function should reflect an overweighting of relatively large gains w.r.t.…”

Section: The Non Informed Agent's Problemmentioning

confidence: 99%

“…In [2], the authors already compared an EU N-agent with an EU I-agent; the main result is the fact that the insider always gets more than a non informed agent (see also the estimate in Example 2.1). Furthermore, the differences between an EU N-agent and a CPT N-agent are easy to analyze: on one hand, we have seen that the optimal policy for a classical N-agent is to choose a constant wealth, i.e.…”

Section: Our Analysis Distinguished Four Different Types Of Investorsmentioning

confidence: 99%

“…Therefore, knowing the P-law of Y translates to an informational advantage. The assumption that nobody in the market observe the prices under P is justified by the reasonable fact that the model for the prices can be calibrated on observed data under Q, while all the agents ignore the effective drifts in the price dynamics (see Remark 1 in [2]). …”

Section: Introductionmentioning

confidence: 99%

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Weak Insider Trading and Behavioral Finance

Campi¹,

Vigna²

2012

SIAM J. Finan. Math.

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In this paper, we study the optimal portfolio selection problem for weakly informed traders in the sense of Baudoin [1]. Apart from expected utility maximizers, we consider investors with other preference paradigms. In particular, we consider agents following cumulative prospect theory as developed by Tversky and Kahneman [12] as well as Yaari's dual theory of choice [13]. We solve the corresponding optimization problems, in both non-informed and informed case, i.e. when the agent has an additional weak information. Finally, comparison results among investors with different preferences and information sets are given, together with explicit examples. In particular, the insider's gain, i.e. the difference between the optimal values of an informed and a non informed investor, is explicitly computed.

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Section: The Non Informed Agent's Problemmentioning

confidence: 99%

Section: Our Analysis Distinguished Four Different Types Of Investorsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Weak Insider Trading and Behavioral Finance

Campi¹,

Vigna²

2012

SIAM J. Finan. Math.

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“…This is the case here since all elements in R Y (P) start at 0. (3) The use of R Y (P) in mathematical finance was developed in [3] and [5], in the topic of asymmetric information between different insiders. (4) In the case where Y = x T the invariance of a reciprocal class under some one parameter families of transformations was investigated in [18].…”

Section: Introductionmentioning

confidence: 99%

Pinning class of the Wiener measure by a functional: related martingales and invariance properties

Baudoin

Thieullen

2003

Probab. Theory Relat. Fields

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For a given functional Y on the path space, we define the pinning class of the Wiener measure as the class of probabilities which admit the same conditioning given Y as the Wiener measure. Using stochastic analysis and the theory of initial enlargement of filtration, we study the transformations (not necessarily adapted) which preserve this class. We prove, in this non Markov setting, a stochastic Newton equation and a stochastic Noether theorem. We conclude the paper with some non canonical representations of Brownian motion, closely related to our study.

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“…Imkeller [16,17] used the notion of progressive enlargement of filtration to model inside information on a random time that is not a stopping time for regular traders, and used Malliavin calculus to characterise the information drift. Corcuera et al [12] considered a dynamic flow of inside information, Baudoin and Nguyen-Ngoc [6] considered so-called weak information, involving knowledge of the law of some random variable, Hillairet [15] compared optimal strategies of insiders with different forms of side-information, and Campi [9] treated a quadratic hedging problem. To the best of our knowledge this paper is the first to combine partial and inside information scenarios.…”

Section: Introductionmentioning

confidence: 99%

Optimal investment with inside information and parameter uncertainty

Danilova¹,

Monoyios²,

Ng³

2010

Math Finan Econ

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An optimal investment problem is solved for an insider who has access to noisy information related to a future stock price, but who does not know the stock price drift. The drift is filtered from a combination of price observations and the privileged information, fusing a partial information scenario with enlargement of filtration techniques. We apply a variant of the Kalman-Bucy filter to infer a signal, given a combination of an observation process and some additional information. This converts the combined partial and inside information model to a full information model, and the associated investment problem for HARA utility is explicitly solved via duality methods. We consider the cases in which the agent has information on the terminal value of the Brownian motion driving the stock, and on the terminal stock price itself. Comparisons are drawn with the classical partial information case without insider knowledge. The parameter uncertainty results in stock price inside information being more valuable than Brownian information, and perfect knowledge of the future stock price leads to infinite additional utility. This is in contrast to the conventional case in which the stock drift is assumed known, in which perfect information of any kind leads to unbounded additional utility, since stock price information is then indistinguishable from Brownian information.

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The financial value of a weak information on a financial market

Cited by 21 publications

References 19 publications

Weak Insider Trading and Behavioral Finance

Weak Insider Trading and Behavioral Finance

Pinning class of the Wiener measure by a functional: related martingales and invariance properties

Optimal investment with inside information and parameter uncertainty

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