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The Value of Insider Information for Super--Replication with Quadratic Transaction Costs

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  • Yan Dolinsky
  • Jonathan Zouari

Abstract

We study super--replication of European contingent claims in an illiquid market with insider information. Illiquidity is captured by quadratic transaction costs and insider information is modeled by an investor who can peek into the future. Our main result describes the scaling limit of the super--replication prices when the number of trading periods increases to infinity. Moreover, the scaling limit gives us the asymptotic value of being an insider.

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  • Yan Dolinsky & Jonathan Zouari, 2019. "The Value of Insider Information for Super--Replication with Quadratic Transaction Costs," Papers 1910.09855, arXiv.org, revised Sep 2020.
    • Handle: RePEc:arx:papers:1910.09855
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    References listed on IDEAS

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