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Strategic Insider Trading Equilibrium: A Filter Theory Approach

Author

Listed:
  • Aase, Knut K.

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Bjuland, Terje

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Øksendal, Bernt

    (Department of Mathematics, University of Oslo)

Abstract

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.

Suggested Citation

  • Aase, Knut K. & Bjuland, Terje & Øksendal, Bernt, 2010. "Strategic Insider Trading Equilibrium: A Filter Theory Approach," Discussion Papers 2010/9, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2010_009
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    File URL: http://hdl.handle.net/11250/164140
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    Citations

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    Cited by:

    1. Stoyan V. Stoyanov & Yong Shin Kim & Svetlozar T. Rachev & Frank J. Fabozzi, 2017. "Option pricing for Informed Traders," Papers 1711.09445, arXiv.org.
    2. Aase, Knut K. & Bjuland, Terje & Øksendal, Bernt, 2011. "Insider trading with partially informed traders," Discussion Papers 2011/21, Norwegian School of Economics, Department of Business and Management Science.
    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. Christoph Kuhn & Matthias Riedel, 2012. "Price-Setting of Market Makers: A Filtering Problem with an Endogenous Filtration," Papers 1210.4000, arXiv.org.
    5. Aase, Knut K. & Gjesdal, Frøystein, 2016. "Insider trading with non-fiduciary market makers," Discussion Papers 2016/8, Norwegian School of Economics, Department of Business and Management Science.

    More about this item

    Keywords

    Insider trading; equilibrium; strategic trade; linear filter theory; innovation equation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

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