Two Examples of an Insider with Medium/Long Term Effects on the Underlying

Hiroaki Hata and Arturo Kohatsu-Higa
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Hiroaki Hata: Institute of Mathematics, Academia Sinica, No. 1, Section 4, Roosevelt Road, Taipei, 106-17, Taiwan
Arturo Kohatsu-Higa: Osaka University. Graduate School of Engineering Sciences Machikaneyama cho 1-3, Osaka 560-8531, Japan

Chapter 2 in Recent Advances in Financial Engineering 2010, 2011, pp 19-42 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn a recent article [4], we have developed a market model where an insider trades using future information on the value of the underlying, through these trades it creates an effect on the drift of the underlying model. We find points of partial equilibria. That is, when the filtration is fixed the chosen portfolio is optimal, leads to finite utility of the insider and prices are semimartingales in their own filtration. In this article, we treat two explicit examples in detail. The first is an insider which has a medium term effect on the price. The second is an insider which has a long term effect on the price with memory effects. These examples were quoted in [4] but no details were given.

Keywords: Operations Research; Financial Engineering; Management; Mathematical Modeling; Credit Risk; Real Options; Optimal Investment; Heterogeneous Beliefs (search for similar items in EconPapers)
Date: 2011
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