Information-Based Models For Finance And Insurance
In financial markets, the information that traders have about an asset is reflected in its price. The arrival of new information then leads to price changes. The 'Information-based framework' of Brody, Hughston and Macrina (BHM) isolates the emergence of information, and examines its role as a driver of price dynamics. This approach has led to the development of new models that capture a broad range of price behaviour. This paper extends the work of BHM by introducing a wider class of processes for the generation of the market filtration. In the BHM framework, each asset is associated with a collection of random cash flows.