Insider information and its relation with the arbitrage condition and the utility maximization problem

DOI10.3934/MBE.2020053zbMATH Open1470.91238arXiv1909.03430OpenAlexW3105233406WikidataQ90792361 ScholiaQ90792361MaRDI QIDQ2045757FDOQ2045757

Authors: José Antonio Salmerón, Bernardo D'Auria 

Publication date: 13 August 2021

Published in: Mathematical Biosciences and Engineering (Search for Journal in Brave)

Abstract: Within the well-known framework of financial portfolio optimization, we analyze the existing relationships between the condition of arbitrage and the utility maximization in presence of emph{insider information}. We assume that, since the initial time, the information flow is altered by adding the knowledge of an additional random variable including future information. In this context we study the utility maximization problem under the logarithmic and the Constant Relative Risk Aversion (CRRA) utilities, with and without the restriction of no temporary-bankruptcy. In particular, we show that the value of the insider information may be bounded while the arbitrage condition holds and we prove that the insider information does not always imply arbitrage for the insider by providing an explicit example.

Full work available at URL: https://arxiv.org/abs/1909.03430

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zbMATH Keywords

enlargement of filtrationoptimal portfoliorisk neutral measurearbitrageno free lunch vanishing riskvalue of the information

Mathematics Subject Classification ID

Portfolio theory (91G10) Optimal stochastic control (93E20)

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Cited In (5)

• Special issue: Advances in stochastic processes and applications
• Additional utility of insiders with imperfect dynamical information
• Insiders and outsiders and efficient asymmetric information contracts
• Arbitrage and utility maximization in market models with an insider
• Anticipative information in a Brownian-Poisson market

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