The value of informational arbitrage

Huy N. Chau (), Andrea Cosso () and Claudio Fontana ()
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Huy N. Chau: Osaka University
Andrea Cosso: University of Bologna
Claudio Fontana: University of Padova

Finance and Stochastics, 2020, vol. 24, issue 2, No 1, 277-307

Abstract: Abstract In the context of a general semimartingale model, we aim at determining how much an investor is willing to pay to learn additional information that allows achieving arbitrage. If such a value exists, we call it the value of informational arbitrage. We are interested in the case where the information yields arbitrage opportunities but not unbounded profits with bounded risk. As in Amendinger et al. (Finance Stoch. 7:29–46, 2003), we rely on an indifference valuation approach and study optimal consumption–investment problems under initial information and arbitrage. We establish some new results on models with additional information and characterise when the value of informational arbitrage is universal.

Keywords: Value of information; Enlargement of filtration; Arbitrage; Indifference price; Martingale representation; 60G44; 91B44; 91G10 (search for similar items in EconPapers)
JEL-codes: C02 C60 G11 G14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00780-020-00418-3

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