Multiperiod Securities Markets, With Differential Information: Martingales and Resolution Times (Classic Reprint) - Softcover

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Excerpt from Multiperiod Securities Markets, With Differential Information: Martingales and Resolution Times

We model multiperiod securities markets with differential information. A price system that admits no free lunches is related to martingales when agents have rational expec tations. We introduce a concept called resolution time and show that a better informed agent and a worse informed agent must agree on the resolution times of commonly mar keted events if they have rational expectations and if there are no free lunches. It then follows that if all the elementary events are marketed for a worse informed agent then any price system that admits no free lunches to a better informed agent must dynami cally equalize the information asymmetry between the two. We provide an example of.

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