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Option Hedging By An Influent Informed Investor

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  • Anne Eyraud-Loisel

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

In this paper a model with an influent and informed investor is presented from a hedging point of view. The financial agent is supposed to possess an additional information, and is also supposed to influence the market prices. The problem is modeled by a forward-backward stochastic differential equation (FBSDE), to be solved under an initial enlargement of the Brownian filtration. An existence and uniqueness Theorem is proved under standard assummptions. The financial interpretation is derived, together with an example of such influenced informed model.

Suggested Citation

  • Anne Eyraud-Loisel, 2011. "Option Hedging By An Influent Informed Investor," Post-Print hal-00450948, HAL.
    • Handle: RePEc:hal:journl:hal-00450948
    DOI: 10.1002/asmb.889
    Note: View the original document on HAL open archive server: https://hal.science/hal-00450948
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    References listed on IDEAS

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    1. Axel Grorud & Monique Pontier, 1998. "Insider Trading in a Continuous Time Market Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 331-347.
    2. Anne Eyraud-Loisel, 2005. "Backward stochastic differential equations with enlarged filtration: Option hedging of an insider trader in a financial market with jumps," Post-Print hal-01298905, HAL.
    3. Amendinger, Jürgen & Imkeller, Peter & Schweizer, Martin, 1998. "Additional logarithmic utility of an insider," Stochastic Processes and their Applications, Elsevier, vol. 75(2), pages 263-286, July.
    4. Imkeller, Peter & Pontier, Monique & Weisz, Ferenc, 2001. "Free lunch and arbitrage possibilities in a financial market model with an insider," Stochastic Processes and their Applications, Elsevier, vol. 92(1), pages 103-130, March.
    5. Cuoco, Domenico & Cvitanic, Jaksa, 1998. "Optimal consumption choices for a 'large' investor," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 401-436, March.
    6. Bouchard, Bruno & Elie, Romuald, 2008. "Discrete-time approximation of decoupled Forward-Backward SDE with jumps," Stochastic Processes and their Applications, Elsevier, vol. 118(1), pages 53-75, January.
    7. Föllmer, Hans & Wu, Ching-Tang & Yor, Marc, 1999. "Canonical decomposition of linear transformations of two independent Brownian motions motivated by models of insider trading," Stochastic Processes and their Applications, Elsevier, vol. 84(1), pages 137-164, November.
    8. Axel Grorud & Monique Pontier, 2001. "Asymmetrical Information And Incomplete Markets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 285-302.
    9. Delarue, François, 2002. "On the existence and uniqueness of solutions to FBSDEs in a non-degenerate case," Stochastic Processes and their Applications, Elsevier, vol. 99(2), pages 209-286, June.
    10. Eyraud-Loisel, Anne, 2005. "Backward stochastic differential equations with enlarged filtration: Option hedging of an insider trader in a financial market with jumps," Stochastic Processes and their Applications, Elsevier, vol. 115(11), pages 1745-1763, November.
    11. Amendinger, Jürgen & Imkeller, Peter & Schweizer, Martin, 1998. "Additional logarithmic utility of an insider," SFB 373 Discussion Papers 1998,25, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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    Cited by:

    1. Anne Eyraud-Loisel, 2019. "How Does Asymmetric Information Create Market Incompleteness?," Methodology and Computing in Applied Probability, Springer, vol. 21(2), pages 531-538, June.

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