6533b82ffe1ef96bd1295d02

RESEARCH PRODUCT

Initial Enlargement in a Markov chain market model

Dario GasbarraEsko ValkeilaJosé Igor Morlanes

subject

Actuarial scienceQuantitative Finance - Trading and Market MicrostructureMarkov chainStochastic process010102 general mathematicsProbability (math.PR)01 natural sciencesInsiderTrading and Market Microstructure (q-fin.TR)FOS: Economics and business010104 statistics & probabilityOrder (exchange)Modeling and SimulationFiltration (mathematics)FOS: MathematicsResizingArbitrage0101 mathematicsMarket modelMathematical economicsMathematics - ProbabilityMathematics

description

Enlargement of filtrations is a classical topic in the general theory of stochastic processes. This theory has been applied to stochastic finance in order to analyze models with insider information. In this paper we study initial enlargement in a Markov chain market model, introduced by Norberg. In the enlarged filtration, several things can happen: some of the jumps times can be accessible or predictable, but in the original filtration all the jumps times are totally inaccessible. But even if the jumps times change to accessible or predictable, the insider does not necessarily have arbitrage possibilities.

yearjournalcountryeditionlanguage
2011-09-01
https://dx.doi.org/10.48550/arxiv.1108.2623