Advances in Applied Probability

Information: price and impact on general welfare and optimal investment. An anticipative stochastic differential game model

Christian-Oliver Ewald and Yajun Xiao

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Abstract

Within an anticipative stochastic calculus framework, we study a market game with asymmetric information and feedback effects. We derive necessary and sufficient criteria for the existence of Nash equilibria and study how general welfare is affected by the level of information. In particular, we show that, under certain conditions in a competitive environment, an increased level of information may in fact lower the level of general welfare, leading to the so-called Hirshleifer effect (see Hirshleifer (1971)). Finally, we determine equilibrium prices for particular pieces of information, by extending our market game with a pre-stage, in which information is traded.

Article information

Source
Adv. in Appl. Probab., Volume 43, Number 1 (2011), 97-120.

Dates
First available in Project Euclid: 15 March 2011

Permanent link to this document
https://projecteuclid.org/euclid.aap/1300198514

Digital Object Identifier
doi:10.1239/aap/1300198514

Mathematical Reviews number (MathSciNet)
MR2761149

Zentralblatt MATH identifier
1217.91057

Subjects
Primary: 91B28
Secondary: 60H07: Stochastic calculus of variations and the Malliavin calculus 60H10: Stochastic ordinary differential equations [See also 34F05] 60H30: Applications of stochastic analysis (to PDE, etc.)

Keywords
Information financial market stochastic differential game

Citation

Ewald, Christian-Oliver; Xiao, Yajun. Information: price and impact on general welfare and optimal investment. An anticipative stochastic differential game model. Adv. in Appl. Probab. 43 (2011), no. 1, 97--120. doi:10.1239/aap/1300198514. https://projecteuclid.org/euclid.aap/1300198514


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