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Quadratic hedging in an incomplete market derived 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. The studied problem is the point of view of a non informed agent hedging an option in this influenced and informed market. Her lack of information makes the market incomplete to the non informed agent. The obtained results, by means of Malliavin calculus and Clark-Ocone Formula, as well as Filtering Theory are the expressions and a comparison between the strategy of the non informed trader, and the strategy of the informed agent. An expression of the residual risk a non informed trader keeps by detaining an option in this influenced and informed market is derived using a quadratic approach of hedging in incomplete market. Finally, the analysis leads to a measure of the lack of information that makes the incompleteness of the market. The financial interpretation is explained throughout the theoretical analysis, together with an example of such influenced informed model.

Suggested Citation

  • Anne Eyraud-Loisel, 2013. "Quadratic hedging in an incomplete market derived by an influent informed investor," Post-Print hal-00450949, HAL.
    • Handle: RePEc:hal:journl:hal-00450949
    DOI: 10.1080/17442508.2011.652632
    Note: View the original document on HAL open archive server: https://hal.science/hal-00450949
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    References listed on IDEAS

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    11. Huyên Pham, 2000. "On quadratic hedging in continuous time," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 51(2), pages 315-339, April.
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    Cited by:

    1. Anne Eyraud-Loisel, 2019. "How Does Asymmetric Information Create Market Incompleteness?," Post-Print hal-01998386, HAL.
    2. 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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