The value of insider information for super-replication with quadratic transaction costs

Yan Dolinsky*, Jonathan Zouari

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

We study super-replication of European contingent claims in an illiquid market with insider information. Illiquidity is captured by quadratic transaction costs and insider information is modeled by an investor who can peek into the future. Our main result describes the scaling limit of the super-replication prices when the number of trading periods increases to infinity. Moreover, the scaling limit gives us the asymptotic value of being an insider.

Original languageAmerican English
Pages (from-to)394-416
Number of pages23
JournalStochastic Processes and their Applications
Volume131
DOIs
StatePublished - Jan 2021

Bibliographical note

Publisher Copyright:
© 2020 Elsevier B.V.

Keywords

  • Insider trading
  • Quadratic costs
  • Scaling limits
  • Super-replication
  • Volatility uncertainty

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