The Value of Information for Pricing and Hedging

We explore the difference of pricing and hedging problems for agents with different information in a robust approach. The notion of information is naturally linked with sigma-algebras which is made operational by looking at... [ view full abstract ]

We explore the difference of pricing and hedging problems for agents with different information in a robust approach. The notion of information is naturally linked with sigma-algebras which is made operational by looking at subsets of feasible paths. Our key insight is that information can be equivalent to restriction of price paths under consideration. We then introduce valuation of information based on appropriate distances between sigma-algebras.