Strategic Insider Trading Equilibrium: A Filter Theory Approach
AbstractThe continuous-time version of Kyle's (1985) model of asset pricing with asymmetric information is studied, and generalized in various directions, i.e., by allowing time-varying liquidity trading, and by having weaker a priori assumptions on the model. This extension is made possible by the use of filtering theory. We derive the optimal trade for an insider and the corresponding price of the risky asset; the insider's trading intensity satisfies a deterministic integral equation, given perfect inside information.
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Bibliographic InfoPaper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2010/9.
Length: 23 pages
Date of creation: 31 Aug 2010
Date of revision:
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Insider trading; equilibrium; strategic trade; linear filter theory; innovation equation;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-11 (All new papers)
- NEP-CTA-2010-09-11 (Contract Theory & Applications)
- NEP-MST-2010-09-11 (Market Microstructure)
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- Aase, Knut K. & Bjuland, Terje & Øksendal, Bernt, 2011. "Insider trading with partially informed traders," Discussion Papers 2011/21, Department of Business and Management Science, Norwegian School of Economics.
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