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

Yan Dolinsky; Jonathan Zouari

doi:10.1016/j.spa.2020.09.016

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 journal › Article › peer-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 language	English
Pages (from-to)	394-416
Number of pages	23
Journal	Stochastic Processes and their Applications
Volume	131
DOIs	https://doi.org/10.1016/j.spa.2020.09.016
State	Published - 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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10.1016/j.spa.2020.09.016

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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.",

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KW - Volatility uncertainty

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

Abstract

Bibliographical note

Keywords

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