Backward stochastic differential equations with enlarged filtration: Option hedging of an insider trader in a financial market with jumps (Q2572198): Difference between revisions

This paper deals with backward stochastic differential equations (BSDE for short) with enlarged filtration associated with insider trader in a finance market. The author considers the following BSDE related to option hedging, \[ X_t =\xi+\int^T_t f(s,X_s,Z_s)\,ds -\int^T_t(Z_s,dW_s),\quad 0\leq t\leq T, \] where \(W_s\) is \(d\)-dimensional \(F_t\)-Brownian motion on a probability space \((\Omega, F, F_t, P)\) and \(\xi\) the goal to be reached at the maturity \(T\). A soluition is a couple of \(F_t\)-adapted processes (\(X_t\) (wealth) and \(Z_t\) (portfolio strategy)). \(F_t\) can be regarded as the information field of a non-insider trader at \(t\). Since an insider trader has additional informations, the filtration \(Y_t\) of insider trader is bigger than \(F_t\). Assuming that \((F_t,P)\)-martingale is \((Y_t,P)\) semimartingale, the author investigates the BSDE on the insider probability space \((\Omega, F, Y_t, P)\) and compares strategies of an insider trader and a non-insider one. For a finance market with jumps, he adds jump processes to the BSDE and studies similar option hedging problem.