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UTILITY MAXIMIZATION IN AN INSIDER INFLUENCED MARKET
Author(s) -
KohatsuHiga Arturo,
Sulem Agnès
Publication year - 2006
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2006.00266.x
Subject(s) - insider , insider trading , stochastic differential equation , maximization , asset (computer security) , portfolio , economics , mathematical economics , order (exchange) , utility maximization problem , econometrics , market portfolio , financial economics , microeconomics , utility maximization , mathematics , computer science , finance , computer security , political science , law
We study a controlled stochastic system whose state is described by a stochastic differential equation with anticipating coefficients. This setting is used to model markets where insiders have some influence on the dynamics of prices. We give a characterization theorem for the optimal logarithmic portfolio of an investor with a different information flow from that of the insider. We provide explicit results in the partial information case that we extend in order to incorporate the enlargement of filtration techniques for markets with insiders. Finally, we consider a market with an insider who influences the drift of the underlying price asset process. This example gives a situation where it makes a difference for a small agent to acknowledge the existence of an insider in the market.