Strategic Insider Trading Equilibrium: A Filter Theory Approach

24 Pages Posted: 13 Sep 2010

See all articles by Knut K. Aase

Knut K. Aase

Norwegian School of Economics (NHH) - Department of Business and Management Science

Terje Bjuland

Norwegian School of Economics (NHH) - Department of Finance

Bernt Oksendal

University of Oslo - Department of Mathematics; Norwegian School of Economics (NHH) - Department of Finance

Date Written: August 31, 2010

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

Suggested Citation

Aase, Knut K. and Bjuland, Terje and Oksendal, Bernt, Strategic Insider Trading Equilibrium: A Filter Theory Approach (August 31, 2010). NHH Dept. of Finance & Management Science Discussion Paper No. 2010/9. Available at SSRN: https://ssrn.com/abstract=1676128 or http://dx.doi.org/10.2139/ssrn.1676128

Knut K. Aase

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Terje Bjuland

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Bernt Oksendal (Contact Author)

University of Oslo - Department of Mathematics ( email )

P.O. Box 1053
Blindern, N-0162, Os
Norway
+47-2285 5913 (Phone)
+47-2285 4349 (Fax)

Norwegian School of Economics (NHH) - Department of Finance

Helleveien 30
N-5045 Bergen
Norway

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