OPTION HEDGING BY AN INFLUENT INFORMED INVESTOR

Abstract

In this paper a model with an influent and informed investor is presented from a hedging point of view. The financial agent is supposed to possess an additional information, and is also supposed to influence the market prices. The problem is modeled by a forward-backward stochastic differential equation (FBSDE), to be solved under an initial enlargement of the Brownian filtration. An existence and uniqueness Theorem is proved under standard assummptions. The financial interpretation is derived, together with an example of such influenced informed model.Enlargement of filtration; FBSDE; insider trading; influent investor; asymmetric information; martingale representation.