Markovian Bridges with Applications to Insider's Trading

Campi, Luciano

Campi, Luciano (2009), Markovian Bridges with Applications to Insider's Trading, Rencontres probabilistes à l'occasion du 60eme anniversaire de Marc Yor, 2009-06, Paris, France

Type

Communication / Conférence

Date

2009

Conference title

Rencontres probabilistes à l'occasion du 60eme anniversaire de Marc Yor

Conference date

2009-06

Conference city

Paris

Conference country

France

Metadata

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Author(s)

Campi, Luciano

Abstract (EN)

Given a markovian Brownian martingale Z, we construct a Markov process X which is a martingale in its own filtration and satisfies 1 1 X =Z . We compute explicitly its semimartingale decomposition under both its own filtration and the filtration generated jointly by X and Z, so making a connection with (dynamic) enlargement of filtrations theory. As an application, we explicitely solve an equilibrium model with insider trading, that can be viewed as a generalization of Back and Pedersen's (Journal of Financial Markets 1, 1998) where stock price evolution exhibits a local volatility dynamics.

Subjects / Keywords

Markov Bridges