Insiders and Their Free Lunches: The Role of Short Positions

DOI10.1137/20M1375826zbMATH Open1505.91362arXiv2012.00359OpenAlexW3108794015MaRDI QIDQ5097220FDOQ5097220

Authors: Delia Coculescu, Aditi Dandapani 

Publication date: 22 August 2022

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Abstract: Given a stock price process, we analyse the potential of arbitrage by insiders in a context of short-selling prohibitions. We introduce the notion of minimal supermartingale measure, and we analyse its properties in connection to the minimal martingale measure. In particular, we establish conditions when both fail to exist. These correspond to the case when the insider's information set includes some non null events that are perceived as having null probabilities by the uninformed market investors. These results may have different applications, such as in problems related to the local risk-minimisation for insiders whenever strategies are implemented without short selling.

Full work available at URL: https://arxiv.org/abs/2012.00359

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zbMATH Keywords

minimal martingale measurearbitragesinsider trading modelminimal supermartingale measureshort sales restrictions

Mathematics Subject Classification ID

Financial markets (91G15) Applications of stochastic analysis (to PDEs, etc.) (60H30) Martingales and classical analysis (60G46)

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Cited In (2)

• The role of Reddit in the GameStop short squeeze
• Exploiting arbitrage requires short selling

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