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American options with asymmetric information and reflected BSDE

Esmaeeli, N ; Sharif University of Technology | 2018

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  1. Type of Document: Article
  2. DOI: 10.3150/16-BEJ902
  3. Publisher: International Statistical Institute , 2018
  4. Abstract:
  5. We consider an American contingent claim on a financial market where the buyer has additional information. Both agents (seller and buyer) observe the same prices, while the information available to them may differ due to some extra exogenous knowledge the buyer has. The buyer's information flow is modeled by an initial enlargement of the reference filtration. It seems natural to investigate the value of the American contingent claim with asymmetric information. We provide a representation for the cost of the additional information relying on some results on reflected backward stochastic differential equations (RBSDE). This is done by using an interpretation of prices of American contingent claims with extra information for the buyer by solutions of appropriate RBSDE. © 2018 ISI/BS
  6. Keywords:
  7. American contingent claims ; Asymmetric information ; Cost of information ; Initial enlargement of filtrations ; Reflected BSDE
  8. Source: Bernoulli ; Volume 24, Issue 2 , May , 2018 , Pages 1394-1426 ; 13507265 (ISSN)
  9. URL: https://projecteuclid.org/euclid.bj/1505980899