Strategic Insider Trading Equilibrium: A Filter Theory Approach

Knut Aase, Terje Bjuland () and Bernt Øksendal
Additional contact information
Terje Bjuland: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Bernt Øksendal: Department of Mathematics, University of Oslo, Postal: University of Oslo , Department of Mathematics, PO Box 1053, Blindern, NO-0316 Oslo, Norway

No 2010/9, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

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.

Keywords: Insider trading; equilibrium; strategic trade; linear filter theory; innovation equation (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-08-31
New Economics Papers: this item is included in nep-cta and nep-mst
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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