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The sound of silence: equilibrium filtering and optimal censoring in financial markets

Part of: Mathematical finance Stochastic processes Stochastic systems and control

Published online by Cambridge University Press:  25 July 2016

Miles B. Gietzmann  and
Adam J. Ostaszewski
Miles B. Gietzmann*
Affiliation:
Bocconi University
Adam J. Ostaszewski*
Affiliation:
London School of Economics
*
Accounting Department, Bocconi University, Via Roentgen 1 ‒ 5o piano, Milan, Italy. Email address: miles.gietzmann@unibocconi.it
Mathematics Department, London School of Economics, Houghton Street, London WC2A 2AE, UK. Email address: a.j.ostaszewski@lse.ac.uk
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Abstract

Following the approach of standard filtering theory, we analyse investor valuation of firms, when these are modelled as geometric-Brownian state processes that are privately and partially observed, at random (Poisson) times, by agents. Tasked with disclosing forecast values, agents are able purposefully to withhold their observations; explicit filtering formulae are derived for downgrading the valuations in the absence of disclosures. The analysis is conducted for both a solitary firm and m co-dependent firms.

Keywords

Disclosure; filteringpublic filtrationpredictable valuationoptimal censorasset price dynamics

MSC classification

Primary: 91G50: Corporate finance
Secondary: 91G80: Financial applications of other theories (stochastic control, calculus of variations, PDE, SPDE, dynamical systems) 93E11: Filtering 93E35: Stochastic learning and adaptive control 60G35: Signal detection and filtering 60G25: Prediction theory
Type
Research Article
Information
Advances in Applied Probability , Volume 48 , Issue A: Probability, Analysis and Number Theory , July 2016 , pp. 119 - 144
Copyright
Copyright © Applied Probability Trust 2016 

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