Additional logarithmic utility of an insider
Jürgen Amendinger,
Peter Imkeller and
Martin Schweizer
No 1998,25, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
Abstract:
In this paper, we consider a security market in which two investors on different information levels maximize their expected logarithmic utility from terminal wealth. While the ordinary investor's portfolio decisions are based on a public information flow, the insider possesses from the beginning extra information about the outcome of some random variable G, e.g., the future price of a stock. We solve the two optimization problems explicitly and rewrite the insider's additional expected logarithmic utility in terms of a relative entropy. This allows us to provide simple conditions on G for the finiteness of this additional utility and to show that it is basically given by the entropy of G.
Keywords: insider trading; entropy; utility maximization; initial enlargement of filtrations; relative entropy (search for similar items in EconPapers)
Date: 1998
References: Add references at CitEc
Citations: View citations in EconPapers (84)
Downloads: (external link)
https://www.econstor.eu/bitstream/10419/61302/1/721911730.pdf (application/pdf)
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:zbw:sfb373:199825
Access Statistics for this paper
More papers in SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().