Additional utility of insiders with imperfect dynamical information

In this paper we consider a market driven by a Wiener process where there is an insider and a regular trader. The insider has privileged information which has been deformed by an independent noise vanishing as the revelation time approaches. At this time, the information of every trader is the same. We obtain the semimartingale decomposition of the original Wiener process under dynamical enlargement of the filtration, and we prove that if the rate at which the additional noise in the insider’s information vanishes is slow enough then there is no arbitrage and the additional utility of the insider is finite.

Authors and Affiliations

1. Facultat de Matemátiques, Universitat de Barcelona, Gran Via de les Corts Catalanes 585, 08007, Barcelona, Spain

   José M. Corcuera & David Nualart

2. Institut für Mathematik, Humboldt-Universität zu Berlin, Unter den Linden 6, 10999, Berlin, Germany

   Peter Imkeller

3. Department of Economics and Business, Universitat Pompeu Fabra, Ramón Trias Fargas 25-27, 08005, Barcelona, Spain

   Arturo Kohatsu-Higa

Corresponding author

Correspondence to José M. Corcuera.

Received: 1 October 2003,

Mathematics Subject Classification:

60G48, 90A09, 60H07, 90A60

JEL Classification:

D82, G11, G14

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