Insider trading with penalties, entropy and quadratic BSDEs

Umut \c{C}etin

Papers from arXiv.org

Abstract: Kyle model in continuous time where the insider may be subject to legal penalties is considered. In equilibrium the insider internalises this legal risk by trading less aggressively. The equilibrium is characterised via the solution of a backward stochastic differential equation (BSDE) whose terminal condition is determined as the fixed point of a non-linear operator in equilibrium. The insider's expected penalties in equilibrium is non-monotone in the fee structure and is given by the relative entropy of the law of a particular h-transformation of Brownian motion.

Date: 2023-11
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2311.12743 Latest 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:arx:papers:2311.12743

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().