Additional logarithmic utility of an insider

Arbeitspapier

In this paper, we consider a security market in which two investors on different information levels maximize their expected logarithmic utility from terminal wealth. While the ordinary investor's portfolio decisions are based on a public information flow, the insider possesses from the beginning extra information about the outcome of some random variable G, e.g., the future price of a stock. We solve the two optimization problems explicitly and rewrite the insider's additional expected logarithmic utility in terms of a relative entropy. This allows us to provide simple conditions on G for the finiteness of this additional utility and to show that it is basically given by the entropy of G.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 373 Discussion Paper ; No. 1998,25

Classification and Topics

• Classification: Wirtschaft
• Subject: insider trading ; entropy ; utility maximization ; initial enlargement of filtrations ; relative entropy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Amendinger, Jürgen ; Imkeller, Peter ; Schweizer, Martin
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes
• (where): Berlin
• (when): 1998

Further information

• Handle: http://hdl.handle.net/10419/61302
• URN: urn:nbn:de:kobv:11-10056711
• Last update: 10.03.2025, 11:43 AM CET