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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.

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Metadaten
Author:Stefan Ankirchner, Peter Imkeller
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
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