Strategic Insider Trading Equilibrium: A Filter Theory Approach
The 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.
|Date of creation:||31 Aug 2010|
|Contact details of provider:|| Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway|
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