Enlargement of Filtrations -- A Primer
Peter Ouwehand
TL;DR
This paper introduces the fundamental concepts of enlargements of filtrations in stochastic analysis, focusing on initial enlargements with applications to insider trading modeling in finance.
Contribution
It provides a clear overview of initial enlargements of filtrations and their relevance to financial modeling, highlighting their role in insider trading scenarios.
Findings
Explains the basic ideas of filtration enlargements.
Connects filtration theory to insider trading models.
Provides foundational knowledge for further research in stochastic analysis.
Abstract
In stochastic analysis, the flow of information through time is typically modelled using a filtration. We introduce some of the basic ideas involving enlargements of filtration. Here, we focus mainly on initial enlargements, where a given filtration is enlarged with knowledge of an additional random variable. This has applications to the modelling of insider trading in mathematical finance.
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Taxonomy
TopicsStochastic processes and financial applications · Financial Markets and Investment Strategies · Risk and Portfolio Optimization