Dynamic Markov bridges motivated by models of insider trading (Q550151)

This article deals with the following problem: Given a signal process \(Z\), that is a Brownian martingale, how to construct a process \(X\) such that \(Z_1\) is equal to \(X_1\) and \(X\) is a martingale in its own filtration? The construction given here is mainly based on nonlinear filtering techniques and also leads to semimartingale decompositions of \(X\) w.r.t. its own filtration and the joint filtration of \(X\) and \(Z\). The motivation for this topic comes from the theory of probability on the one hand and finance on the other hand. First it generalizes earlier results by using very different techniques and second it can be used in the modeling of insider trading.