Markovian Bridges with Applications to Insider's Trading
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
TypeCommunication / Conférence
Conference titleRencontres probabilistes à l'occasion du 60eme anniversaire de Marc Yor
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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 / KeywordsMarkov Bridges
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