Canonical decomposition of linear transformations of two independent Brownian motions

Hans Föllmer, Ching-tang Wu and Marc Yor

No 1998,61, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: Motivated by the Kyle-Back model of 'insider trading', we consider certain classes of linear transformations of two independent Brownian motions and study their canonical decomposition as semimartingales in their own filtration. In particular we characterize those transformations which generate again a Brownian motion.

Keywords: Brownian motion; insider trading; stochastic filtering theory; enlargement of filtration; canonical decomposition; Sturm-Liouville equation; Volterra kernels (search for similar items in EconPapers)
JEL-codes: D82 G14 (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:199861

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