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Canonical decomposition of linear transformations of two independent Brownian motions

Author

Listed:
  • Föllmer, Hans
  • Wu, Ching-tang
  • Yor, Marc

Abstract

Motivated by the Kyle-Back model of 'insider trading', we consider certain classes of linear transformations of two independent Brownian motions and study their canonical decomposition as semimartingales in their own filtration. In particular we characterize those transformations which generate again a Brownian motion.

Suggested Citation

  • Föllmer, Hans & Wu, Ching-tang & Yor, Marc, 1998. "Canonical decomposition of linear transformations of two independent Brownian motions," SFB 373 Discussion Papers 1998,61, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:199861
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    References listed on IDEAS

    as
    1. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    2. Back, Kerry, 1992. "Insider Trading in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
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    More about this item

    Keywords

    Brownian motion; insider trading; stochastic filtering theory; enlargement of filtration; canonical decomposition; Sturm-Liouville equation; Volterra kernels;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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