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The insider trading problem in a jump-binomial model

Author

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  • Hélène Halconruy

    (IP Paris - Institut Polytechnique de Paris, TSP - CITI - Communications, Images et Traitement de l'Information - IMT - Institut Mines-Télécom [Paris] - TSP - Télécom SudParis, SOP - SAMOVAR - Statistiques, Optimisation, Probabilités - SAMOVAR - Services répartis, Architectures, MOdélisation, Validation, Administration des Réseaux - IMT - Institut Mines-Télécom [Paris] - TSP - Télécom SudParis, MODAL'X - Modélisation aléatoire de Paris X - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study insider trading in a jump-binomial model of the financial market that is based on a marked binomial process and that serves as a suitable alternative to some classical trinomial models. Our investigations focus on the two main questions: measuring the advantage of the insider's additional information and stating a closed form for her hedging strategy. Our approach is based on the results of enlargement of filtration in a discrete-time setting stated by Blanchet-Scalliet and Jeanblanc (in: From probability to finance, Springer, Berlin, 2020) and on a stochastic analysis for marked binomial processes developed in the companion paper (Halconruy in Electron J Probab 27:1-39, 2022). Our work provides in a discrete-time and an incomplete market setting the analogues of some results of Amendinger et al. (

Suggested Citation

  • Hélène Halconruy, 2023. "The insider trading problem in a jump-binomial model," Post-Print hal-04346427, HAL.
    • Handle: RePEc:hal:journl:hal-04346427
    DOI: 10.1007/s10203-023-00412-2
    Note: View the original document on HAL open archive server: https://hal.science/hal-04346427v1
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    References listed on IDEAS

    as
    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.
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    5. Hiroaki Hata & Arturo Kohatsu-Higa, 2013. "A market model with medium/long-term effects due to an insider," Quantitative Finance, Taylor & Francis Journals, vol. 13(3), pages 421-437, February.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Insider trading Trinomial model Enlargement of filtrations Malliavin's calculus Utility maximization JEL Classification G11 G14 C61 C02; Insider trading; Trinomial model; Enlargement of filtrations; Malliavin's calculus; Utility maximization JEL Classification G11; G14; C61; C02; Insider trading trinomial model enlargement of filtrations Malliavin's calculus utility maximization PACS 60J74 60G55 91G20 60H30 60H07 91G10 94A17. JEL Classification G11 G14 C61 C02; trinomial model; enlargement of filtrations; utility maximization PACS 60J74; 60G55; 91G20; 60H30; 60H07; 91G10; 94A17. JEL Classification G11;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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