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Strategic trade when securitized portfolio values are unknown

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  • Piccotti, Louis R.

Abstract

I examine the effect that the precision of securitization has on the market quality of the underlying asset, as well as focus on the market quality of the derivative asset. With securitization, the underlying portfolio has improved liquidity, the trading intensity of an informed trader is increased, and the informed trader’s expected profit is increased. When arbitrageurs are discretionary, jumps in illiquidity can occur. The combination of the underlying portfolio and derivative portfolio prices are revealing about the unknown liquidation value of the underlying portfolio and the derivative price is also revealing about the unknown tracking error.

Suggested Citation

  • Piccotti, Louis R., 2020. "Strategic trade when securitized portfolio values are unknown," Journal of Banking & Finance, Elsevier, vol. 115(C).
    • Handle: RePEc:eee:jbfina:v:115:y:2020:i:c:s0378426620300832
    DOI: 10.1016/j.jbankfin.2020.105816
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