## Inside Information And Stock Fluctuations (1999)

Citations: | 8 - 4 self |

### BibTeX

@MISC{Guo99insideinformation,

author = {Xin Guo},

title = {Inside Information And Stock Fluctuations},

year = {1999}

}

### OpenURL

### Abstract

A model of an incomplete market with the incorporation of a new notion of "inside information" is posed. The usual assumption that the stock price is Markovian is modified by adjoining a hidden Markov process to the Black-Scholes exponential Brownian motion model for stock fluctuations. The drift and volatility parameters take different values when the hidden Markov process is in different states. For example, it is 0 when there is no subset of the market which has or which believes it has, extra information. However, the hidden process is in state 1 when information is not equally shared by all, and then the behavior of the members in the subset causes increased fluctuations in the stock price. This model