 Insider trading at a random deadline with correlation between dynamic asset and stochastic liquidityJixiu Qiu and Yonghui Zhou Applied Mathematics and Computation, 2025, vol. 488, issue C Abstract: We propose a generalized continuous-time insider trading model, building upon the frameworks of Caldentey and Stacchetti (2010) and Collin-Dufresne and Fos (2016), with a correlation between the value of a risky asset following an Ornstein-Uhlenbeck-type process and the noise trading volume with volatility characterized by a general stochastic process. And a closed form of the market equilibrium is established, consisting of the insider's trading strategy and the market makers' pricing rule. It shows that at the equilibrium: (i) all of the insider's private information is released at the end of the transaction; (ii) market depth and market liquidity evolve as semi-martingales, respectively; and (iii) the equilibrium price is driven by a bridge process that solves an Ornstein-Uhlenbeck-type SDE. Numerical simulations show that as the correlation coefficient increases, the equilibrium price becomes more informative, leading to a decrease in both the trading intensity and the expected payoff for the insider. Keywords: Insider trading; Equilibrium; Dynamic asset; Stochastic noise volatility; Random deadline; Correlation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:488:y:2025:i:c:s0096300324005812 DOI: 10.1016/j.amc.2024.129120 Access Statistics for this article Applied Mathematics and Computation is currently edited by Theodore Simos More articles in Applied Mathematics and Computation from Elsevier |
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