Financial markets with asymmetric information: information drift, additional utility and entropy
Please always quote using this URN:urn:nbn:de:0296-matheon-6341
- We review a general mathematical link between utility and information theory appearing in a simple financial market model with two kinds of small investors: insiders, whose extra information is stored in an enlargement of the less informed agents' filtration. The insider's expected logarithmic utility increment is described in terms of the information drift, i.e. the drift one has to eliminate in order to perceive the price dynamics as a martingale from his perspective. We describe the information drift in a very general setting by natural quantities expressing the conditional laws of the better informed view of the world. This on th other hand allows to identify the additional utility by entropy related quantities known from information theory.
Author: | Stefan Ankirchner, Peter Imkeller |
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URN: | urn:nbn:de:0296-matheon-6341 |
Referee: | Dirk Becherer |
Document Type: | Preprint, Research Center Matheon |
Language: | English |
Date of first Publication: | 2009/07/26 |
Release Date: | 2009/07/24 |
Tag: | |
Institute: | Humboldt-Universität zu Berlin |
Preprint Number: | 643 |