Informed traders

This article is available open access through the publisher’s website at the link below. Copyright @ 2008 The Royal Society.An asymmetric information model is introduced for the situation in which there is a small agent who is more susceptible to the flow of information in the market than the general market participant, and who tries to implement strategies based on the additional information. In this model market participants have access to a stream of noisy information concerning the future return of an asset, whereas the informed trader has access to a further information source which is obscured by an additional noise that may be correlated with the market noise. The informed trader uses the extraneous information source to seek statistical arbitrage opportunities, while at the same time accommodating the additional risk. The amount of information available to the general market participant concerning the asset return is measured by the mutual information of the asset price and the associated cash flow. The worth of the additional information source is then measured in terms of the difference of mutual information between the general market participant and the informed trader. This difference is shown to be non-negative when the signal-to-noise ratio of the information flow is known in advance. Explicit trading strategies leading to statistical arbitrage opportunities, taking advantage of the additional information, are constructed, illustrating how excess information can be translated into profit

Jump-diffusion asset-liability management via risk-sensitive control

In this paper, we use risk-sensitive control methods to solve a jump-diffusion asset–liability management (ALM) problem. We show that the ALM problem admits a unique classical ( C1,2C1,2 ) solution under two different sets of assumptions

A note on utility-based pricing

In this short note, we discuss the features of utility-based pricing and indifference pricing. To do this, we introduce a utility-based curve that simply and simultaneously allows for a discussion of the graphical features of both prices. We also clarify features of these prices form an economics point of view; the introduction of this utility-based curve enables us to simply discuss the property of the partial equilibrium of the random endowment. We also discuss the availability of the analysis using income and substitution effects to clarify the quality of economic goods. This analysis is well-known in the context of economics. A utility-based curve shows us the impossibility of this analysis. In a sense, the implicit purpose of this paper is to show the limitations of a utility-based and indifference framework

Weighted entropy and optimal portfolios for risk-averse Kelly investments

Following a series of works on capital growth investment, we analyse log-optimal portfolios where the return evaluation includes `weights' of different outcomes. The results are twofold: (A) under certain conditions, the logarithmic growth rate leads to a supermartingale, and (B) the optimal (martingale) investment strategy is a proportional betting. We focus on properties of the optimal portfolios and discuss a number of simple examples extending the well-known Kelly betting scheme. An important restriction is that the investment does not exceed the current capital value and allows the trader to cover the worst possible losses. The paper deals with a class of discrete-time models. A continuous-time extension is a topic of an ongoing study

Generalised risk-sensitive control with full and partial state observation

This paper generalises the risk-sensitive cost functional by introducing noise dependent penalties on the state and control variables. The optimal control problems for the full and partial state observation are considered. Using a change of probability measure approach, explicit closed-form solutions are found in both cases. This has resulted in a new risk-sensitive regulator and filter, which are generalisations of the well-known classical results

Signal processing with Levy information

Levy processes, which have stationary independent increments, are ideal for modelling the various types of noise that can arise in communication channels. If a Levy process admits exponential moments, then there exists a parametric family of measure changes called Esscher transformations. If the parameter is replaced with an independent random variable, the true value of which represents a "message", then under the transformed measure the original Levy process takes on the character of an "information process". In this paper we develop a theory of such Levy information processes. The underlying Levy process, which we call the fiducial process, represents the "noise type". Each such noise type is capable of carrying a message of a certain specification. A number of examples are worked out in detail, including information processes of the Brownian, Poisson, gamma, variance gamma, negative binomial, inverse Gaussian, and normal inverse Gaussian type. Although in general there is no additive decomposition of information into signal and noise, one is led nevertheless for each noise type to a well-defined scheme for signal detection and enhancement relevant to a variety of practical situations.Comment: 27 pages. Version to appear in: Proc. R. Soc. London

Outcomes of a Positive Patient ID Campaign at a Pediatric Quaternary Care Center

Introduction. Positive patient identification (PPID) is critical to safe and accurate labeling of patient lab specimens. Accurate PPID is also an important priority of The Joint Commission’s National Safety Goals. Inadequate PPID compromises may lead to waste of time and resources, and in the worst-case scenario can lead to significant patient morbidity and mortality. With a focus on PPID, this initiative examined the occurrence of mislabeled and unlabeled lab specimens as well as compliance with wearing ID bands in a cohort of hematology/oncology and bone marrow transplant inpatients at a large pediatric quaternary care center. Methods. Using the Plan-Do-Study-Act Model, this initiative details educational interventions directed at staff, caregivers, and patients. Results. While nursing education and posted reminders did not reduce reported unlabeled or mislabeled lab specimens, we document an increase in the percent of patients wearing ID bands from 67.5% to 95.6% following both parent education and a patient-friendly poster campaign. This work identified that older children were more likely to wear ID bands. The median age of those correctly wearing ID bands was 12 years old versus median age of 1.9 years of non-compliant children. Conclusion. The PPID initiative identified a problem with mislabeled lab specimens and poor ID band compliance. ID band compliance improved with educational measures. Younger children may need additional measures to promote these patients wearing ID bands and they should be examined as a special population in future projects evaluating PPID

Risk-Sensitive Mean-Field Type Control under Partial Observation

We establish a stochastic maximum principle (SMP) for control problems of partially observed diffusions of mean-field type with risk-sensitive performance functionals.Comment: arXiv admin note: text overlap with arXiv:1404.144

Mean-Field Limits Beyond Ordinary Differential Equations

16th International School on Formal Methods for the Design of Computer, Communication, and Software Systems, SFM 2016, Bertinoro, Italy, June 20-24, 2016, Advanced LecturesInternational audienceWe study the limiting behaviour of stochastic models of populations of interacting agents, as the number of agents goes to infinity. Classical mean-field results have established that this limiting behaviour is described by an ordinary differential equation (ODE) under two conditions: (1) that the dynamics is smooth; and (2) that the population is composed of a finite number of homogeneous sub-populations, each containing a large number of agents. This paper reviews recent work showing what happens if these conditions do not hold. In these cases, it is still possible to exhibit a limiting regime at the price of replacing the ODE by a more complex dynamical system. In the case of non-smooth or uncertain dynamics, the limiting regime is given by a differential inclusion. In the case of multiple population scales, the ODE is replaced by a stochastic hybrid automaton