Financial Markets with Asymmetric Information: Information Drift, Additional Utility and Entropy

Stefan Ankirchner and Peter Imkeller
Additional contact information
Stefan Ankirchner: Institut für Mathematik, Humboldt-Universität zu Berlin, Unter den Linden 6, 10099 Berlin, Germany
Peter Imkeller: Institut für Mathematik, Humboldt-Universität zu Berlin, Unter den Linden 6, 10099 Berlin, Germany

Chapter 1 in Stochastic Processes and Applications to Mathematical Finance, 2007, pp 1-21 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe review a general mathematical link between utility and information theory appearing in a simple financial market model with two kinds of small investors: insiders, whose extra information is stored in an enlargement of the less informed agents' filtration. The insider's expected logarithmic utility increment is described in terms of the information drift, i.e. the drift one has to eliminate in order to perceive the price dynamics as a martingale from his perspective. We describe the information drift in a very general setting by natural quantities expressing the conditional laws of the better informed view of the world. This on the other hand allows to identify the additional utility by entropy related quantities known from information theory.

Keywords: Stochastic Calculus; Mathematical Finance; Insider Trading; Stochastic Control; Real Options; Filtering Model of Credit Risks; Stochastic Growth Models (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789812770448_0001 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789812770448_0001 (text/html)
Ebook Access is available upon purchase.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789812770448_0001

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().