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.
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Acknowledgments
We want to thank Francesca Biagini, Albina Danilova, Yaozhong Hu, Kjell Henry Knivsflå , Thilo Meyer-Brandis and Dirk Paulsen for valuable comments.
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The research leading to these results has received funding from the European Research Council under the European Community’s Seventh Framework Programme (FP7/2007-2013)/ERC grant agreement no [228087].
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Aase, K.K., Bjuland, T. & Øksendal, B. Strategic insider trading equilibrium: a filter theory approach. Afr. Mat. 23, 145–162 (2012). https://doi.org/10.1007/s13370-011-0026-x
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DOI: https://doi.org/10.1007/s13370-011-0026-x