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

Part of: Stochastic analysis

Published online by Cambridge University Press:  01 July 2016

Christian-Oliver Ewald  and
Yajun Xiao
Christian-Oliver Ewald*
Affiliation:
University of Sydney
Yajun Xiao*
Affiliation:
University of Freiburg
*
∗ Postal address: School of Mathematics and Statistics, University of Sydney, Sydney, NSW 2006, Australia. Email address: christian.ewald@sydney.edu.au
∗∗ Postal address: Institute for Research in Economic Evolution, University of Freiburg, Platz der Alten Synagoge, KGII 79098 Freiburg i. Br., Germany.
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Abstract

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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.

Keywords

Informationfinancial marketstochastic differential game

MSC classification

Secondary: 60H07: Stochastic calculus of variations and the Malliavin calculus 60H10: Stochastic ordinary differential equations 60H30: Applications of stochastic analysis (to PDE, etc.)
Type
General Applied Probability
Information
Advances in Applied Probability , Volume 43 , Issue 1 , March 2011 , pp. 97 - 120
Copyright
Copyright © Applied Probability Trust 2011 

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