IDEAS home Printed from https://ideas.repec.org/a/spr/finsto/v17y2013i3p565-585.html
   My bibliography  Save this article

Equilibrium model with default and dynamic insider information

Author

Listed:
  • Luciano Campi
  • Umut Çetin
  • Albina Danilova

Abstract

We consider an equilibrium model à la Kyle–Back for a defaultable claim issued by a given firm. In such a market the insider observes continuously in time the value of the firm, which is unobservable by the market makers. Using the construction in Campi et al. ( http://hal.archives-ouvertes.fr/hal-00534273/en/ , 2011 ) of a dynamic three-dimensional Bessel bridge, we provide the equilibrium price and the insider’s optimal strategy. As in Campi and Çetin (Finance Stoch. 11:591–602, 2007 ), the information released by the insider while trading optimally makes the default time predictable in the market’s view at the equilibrium. We conclude the paper by comparing the insider’s expected profits in the static and dynamic private information case. We also compute explicitly the value of the insider’s information in the special cases of a defaultable stock and a bond. Copyright Springer-Verlag 2013

Suggested Citation

  • Luciano Campi & Umut Çetin & Albina Danilova, 2013. "Equilibrium model with default and dynamic insider information," Finance and Stochastics, Springer, vol. 17(3), pages 565-585, July.
    • Handle: RePEc:spr:finsto:v:17:y:2013:i:3:p:565-585
    DOI: 10.1007/s00780-012-0196-x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s00780-012-0196-x
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s00780-012-0196-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Back, Kerry & Pedersen, Hal, 1998. "Long-lived information and intraday patterns," Journal of Financial Markets, Elsevier, vol. 1(3-4), pages 385-402, September.
    2. Luciano Campi & Umut Çetin, 2007. "Insider trading in an equilibrium model with default: a passage from reduced-form to structural modelling," Finance and Stochastics, Springer, vol. 11(4), pages 591-602, October.
    3. repec:dau:papers:123456789/4436 is not listed on IDEAS
    4. Campi, Luciano & Cetin, Umut & Danilova, Albina, 2011. "Dynamic Markov bridges motivated by models of insider trading," LSE Research Online Documents on Economics 31538, London School of Economics and Political Science, LSE Library.
    5. Back, Kerry, 1992. "Insider Trading in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 387-409.
    6. Campi, Luciano & Çetin, Umut & Danilova, Albina, 2011. "Dynamic Markov bridges motivated by models of insider trading," Stochastic Processes and their Applications, Elsevier, vol. 121(3), pages 534-567, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jos'e M. Corcuera & Giulia Di Nunno, 2020. "Path-dependent Kyle equilibrium model," Papers 2006.06395, arXiv.org, revised Oct 2022.
    2. José Manuel Corcuera & Giulia Nunno & José Fajardo, 2019. "Kyle equilibrium under random price pressure," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 42(1), pages 77-101, June.
    3. Abel Azze & Bernardo D'Auria & Eduardo Garc'ia-Portugu'es, 2022. "Optimal stopping of Gauss-Markov bridges," Papers 2211.05835, arXiv.org, revised Jul 2024.
    4. Cheng Li & Hao Xing, 2013. "Asymptotic Glosten Milgrom equilibrium," Papers 1310.4994, arXiv.org, revised Jan 2015.
    5. Jos'e Manuel Corcuera & Giulia Di Nunno & Gergely Farkas & Bernt {O}ksendal, 2014. "A continuous auction model with insiders and random time of information release," Papers 1411.2835, arXiv.org, revised Mar 2018.
    6. Umut c{C}etin & Albina Danilova, 2018. "On pricing rules and optimal strategies in general Kyle-Back models," Papers 1812.07529, arXiv.org, revised Aug 2021.
    7. Cetin, Umut & Danilova, Albina, 2021. "On pricing rules and optimal strategies in general Kyle-Back models," LSE Research Online Documents on Economics 113003, London School of Economics and Political Science, LSE Library.
    8. Li, Cheng & Xing, Hao, 2015. "Asymptotic Glosten-Milgrom equilibrium," LSE Research Online Documents on Economics 60579, London School of Economics and Political Science, LSE Library.
    9. José Manuel Corcuera & Giulia Di Nunno, 2018. "Kyle–Back’S Model With A Random Horizon," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-41, March.
    10. Luke M. Bennett & Wei Hu, 2023. "Filtration enlargement‐based time series forecast in view of insider trading," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 112-140, February.
    11. Umut c{C}etin & Alaina Danilova, 2022. "Order routing and market quality: Who benefits from internalisation?," Papers 2212.07827, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Umut Çetin, 2018. "Financial equilibrium with asymmetric information and random horizon," Finance and Stochastics, Springer, vol. 22(1), pages 97-126, January.
    2. Umut c{C}et{i}n, 2018. "Mathematics of Market Microstructure under Asymmetric Information," Papers 1809.03885, arXiv.org.
    3. Jos'e Manuel Corcuera & Giulia Di Nunno & Gergely Farkas & Bernt {O}ksendal, 2014. "A continuous auction model with insiders and random time of information release," Papers 1411.2835, arXiv.org, revised Mar 2018.
    4. Umut c{C}etin, 2016. "Financial equilibrium with asymmetric information and random horizon," Papers 1603.08828, arXiv.org, revised Sep 2017.
    5. Luciano Campi & Umut Cetin & Albina Danilova, 2011. "Equilibrium model with default and insider's dynamic information," Working Papers hal-00613216, HAL.
    6. Çetin, Umut, 2018. "Financial equilibrium with asymmetric information and random horizon," LSE Research Online Documents on Economics 84495, London School of Economics and Political Science, LSE Library.
    7. José Manuel Corcuera & Giulia Di Nunno, 2018. "Kyle–Back’S Model With A Random Horizon," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-41, March.
    8. Abel Azze & Bernardo D'Auria & Eduardo Garc'ia-Portugu'es, 2022. "Optimal stopping of Gauss-Markov bridges," Papers 2211.05835, arXiv.org, revised Jul 2024.
    9. Cetin, Umut & Xing, Hao, 2013. "Point process bridges and weak convergence of insider trading models," LSE Research Online Documents on Economics 48745, London School of Economics and Political Science, LSE Library.
    10. Luke M. Bennett & Wei Hu, 2023. "Filtration enlargement‐based time series forecast in view of insider trading," Journal of Economic Surveys, Wiley Blackwell, vol. 37(1), pages 112-140, February.
    11. Umut c{C}etin & Hao Xing, 2012. "Point process bridges and weak convergence of insider trading models," Papers 1205.4358, arXiv.org, revised Jan 2013.
    12. Umut c{C}etin & Albina Danilova, 2018. "On pricing rules and optimal strategies in general Kyle-Back models," Papers 1812.07529, arXiv.org, revised Aug 2021.
    13. Cetin, Umut & Danilova, Albina, 2021. "On pricing rules and optimal strategies in general Kyle-Back models," LSE Research Online Documents on Economics 113003, London School of Economics and Political Science, LSE Library.
    14. Shreya Bose & Ibrahim Ekren, 2020. "Kyle-Back Models with risk aversion and non-Gaussian Beliefs," Papers 2008.06377, arXiv.org, revised Oct 2022.
    15. Dolinsky, Yan & Zouari, Jonathan, 2021. "The value of insider information for super-replication with quadratic transaction costs," Stochastic Processes and their Applications, Elsevier, vol. 131(C), pages 394-416.
    16. Li, Cheng & Xing, Hao, 2015. "Asymptotic Glosten-Milgrom equilibrium," LSE Research Online Documents on Economics 60579, London School of Economics and Political Science, LSE Library.
    17. Reda Chhaibi & Ibrahim Ekren & Eunjung Noh & Lu Vy, 2022. "A unified approach to informed trading via Monge-Kantorovich duality," Papers 2210.17384, arXiv.org.
    18. José Manuel Corcuera & Giulia Nunno & José Fajardo, 2019. "Kyle equilibrium under random price pressure," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 42(1), pages 77-101, June.
    19. Albina Danilova, 2016. "Stock Market Insider Trading in Continuous Time with Imperfect Dynamic Information," Papers 1607.00035, arXiv.org.
    20. Mengütürk, Levent Ali, 2018. "Gaussian random bridges and a geometric model for information equilibrium," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 494(C), pages 465-483.

    More about this item

    Keywords

    Default time; Defaultable claim; Equilibrium; Dynamic information; Insider trading; Dynamic Bessel bridge; 60G44; 60H05; 60H10; 93E11; D82; G14;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:finsto:v:17:y:2013:i:3:p:565-585. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.