Point process bridges and weak convergence of insider trading models

Umut Cetin and Hao Xing

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We construct explicitly a bridge process whose distribution, in its own filtration, is the same as the difference of two independent Poisson processes with the same intensity and its time $1$ value satisfies a specific constraint. This construction allows us to show the existence of Glosten-Milgrom equilibrium and its associated optimal trading strategy for the insider. In the equilibrium the insider employs a mixed strategy to randomly submit two types of orders: one type trades in the same direction as noise trades while the other cancels some of the noise trades by submitting opposite orders when noise trades arrive. The construction also allows us to prove that Glosten-Milgrom equilibria converge weakly to Kyle-Back equilibrium, without the additional assumptions imposed in K. Back and S. Baruch, Econometrica, 72 (2004), pp. 433-465, when the common intensity of the Poisson processes tends to infinity.

JEL-codes: F3 G3 J1 (search for similar items in EconPapers)
Date: 2013-02-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Electronic Journal of Probability, 13, February, 2013, 18(26), pp. 1-24. ISSN: 1083-6489

Downloads: (external link)
http://eprints.lse.ac.uk/48745/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:48745

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().