Optimal investment with insider information using Skorokhod & Russo-Vallois integration

Mauricio Elizalde, Carlos Escudero and Tomoyuki Ichiba

Papers from arXiv.org

Abstract: We study the maximization of the logarithmic utility for an insider with different anticipating techniques. Our aim is to compare the utilization of Russo-Vallois forward and Skorokhod integrals in this context. Theoretical analysis and illustrative numerical examples showcase that the Skorokhod insider outperforms the forward insider. This remarkable observation stands in contrast to the scenario involving risk-neutral traders. Furthermore, an ordinary trader could surpass both insiders if a significant negative fluctuation in the driving stochastic process leads to a sufficiently negative final value. These findings underline the intricate interplay between anticipating stochastic calculus and nonlinear utilities, which may yield non-intuitive results from the financial viewpoint.

Date: 2022-11, Revised 2024-12
New Economics Papers: this item is included in nep-upt
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