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Option hedging by an influential informed investor
Author(s) -
EyraudLoisel Anne
Publication year - 2011
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.889
Subject(s) - stochastic differential equation , financial market , uniqueness , completeness (order theory) , economics , investment strategy , mathematical economics , investment (military) , actuarial science , financial economics , microeconomics , mathematics , finance , profit (economics) , law , mathematical analysis , politics , political science
This work extends the study of hedging problems in markets with asymmetrical information: an agent is supposed to possess an additional information on market prices, unknown to the common investor. The financial hedging problem for the influential and informed trader is modeled by a forward–backward stochastic differential equation, to be solved under an initial enlargement of the Brownian filtration. An existence and uniqueness theorem is proved under standard assumptions. The financial interpretation is derived, in terms of investment strategy for the informed and influential agent, as well as the conclusions concerning the general influenced market, in terms of completeness of the market. An example of such influenced and informed model is provided. Copyright © 2011 John Wiley & Sons, Ltd.