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Initial Enlargement in a Markov chain market model

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  • Dario Gasbarra
  • Jos'e Igor Morlanes
  • Esko Valkeila

Abstract

Enlargement of filtrations is a classical topic in the general theory of stochastic processes. This theory has been applied to stochastic finance in order to analyze models with insider information. In this paper we study initial enlargement in a Markov chain market model, introduced by R. Norberg. In the enlargened filtration several things can happen: some of the jumps times can be accessible or predictable, but in the orginal filtration all the jumps times are totally inaccessible. But even if the jumps times change to accessible or predictable, the insider does not necessarily have arbitrage possibilities.

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  • Dario Gasbarra & Jos'e Igor Morlanes & Esko Valkeila, 2011. "Initial Enlargement in a Markov chain market model," Papers 1108.2623, arXiv.org, revised Aug 2011.
    • Handle: RePEc:arx:papers:1108.2623
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    References listed on IDEAS

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    1. Ankirchner, Stefan, 2008. "On filtration enlargements and purely discontinuous martingales," Stochastic Processes and their Applications, Elsevier, vol. 118(9), pages 1662-1678, September.
    2. Stefan Ankirchner & Steffen Dereich & Peter Imkeller, 2005. "The Shannon information of filtrations and the additional logarithmic utility of insiders," Papers math/0503013, arXiv.org, revised May 2006.
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