Kyle equilibrium under random price pressure

Abstract

We study the equilibrium in the model proposed by Kyle (Econometrica 53(6):1315–1335, 1985) and extended to the continuous-time setting by Back (Rev Financ Stud 5(3):387–409, 1992). The novelty of this paper is that we consider a framework where the price pressure can be random. We also allow for a random release time of the fundamental value of the asset. This framework includes all the particular Kyle models proposed in the literature. The results enlighten the equilibrium properties shared by all these models and guide the way of finding equilibria in this context.

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Correspondence to José Fajardo.

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The work of J. M. Corcuera is supported by the Spanish grant MTM2013-40782-P. Giulia di Nunno acknowledges the financial support of the Research Council of Norway (RCN) as this research is carried out within STORM: Stochastics for Time-Space Risk Models, Project 274410. J. Fajardo thanks the financial support from CNPq-Brazil Grant No. 302693/2017-3.

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Corcuera, J.M., Di Nunno, G. & Fajardo, J. Kyle equilibrium under random price pressure. Decisions Econ Finan 42, 77–101 (2019). https://doi.org/10.1007/s10203-019-00231-4

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Keywords

  • Kyle model
  • Market microstructure
  • Equilibrium
  • Insider trading
  • Stochastic control
  • Enlargement of filtrations

Mathematics Subject Classification

  • 60G35
  • 62M20
  • 93E10
  • 94Axx

JEL Classification

  • C61
  • D43
  • D44
  • D53
  • G11
  • G12
  • G14