Department of Mathematics, Centre of Mathematics for Applications (CMA)University of Oslo
Norwegian School of Economics and Business Administration (NHH)
Cite this article as:
Aase, K.K., Bjuland, T. & Øksendal, B. Afr. Mat. (2012) 23: 145. doi:10.1007/s13370-011-0026-x
The continuous-time version of Kyle’s (Econometrica 53(6):1315–1336, 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.