Afrika Matematika

, Volume 23, Issue 2, pp 145–162

Strategic insider trading equilibrium: a filter theory approach

Authors

  • Knut K. Aase
    • Department of Mathematics, Centre of Mathematics for Applications (CMA)University of Oslo
    • Norwegian School of Economics and Business Administration (NHH)
  • Terje Bjuland
    • Norwegian School of Economics and Business Administration (NHH)
    • Department of Mathematics, Centre of Mathematics for Applications (CMA)University of Oslo
    • Norwegian School of Economics and Business Administration (NHH)
Open AccessArticle

DOI: 10.1007/s13370-011-0026-x

Cite this article as:
Aase, K.K., Bjuland, T. & Øksendal, B. Afr. Mat. (2012) 23: 145. doi:10.1007/s13370-011-0026-x

Abstract

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.

Keywords

Insider trading Equilibrium Strategic trade Linear filter theory Innovation equation

Mathematics Subject Classification (2010)

60G35 62M20 93E10 93E20

Copyright information

© The Author(s) 2011