An equilibrium model of insider trading in continuous time
type: Item
instance of: scholarly article
title: An equilibrium model of insider trading in continuous time
zbMATH Open document ID: 1185.91106
author: Roberto Monte
author: Barbara Trivellato
published in: Decisions in Economics and Finance
publication date: 2009-11-16T00:00:00Z
review text: This paper concerns a Bayesian-Nash equilibrium model for a market with no transaction cost, a risk-free asset, and a risky asset. As usual in such problems, there are three types of agents: a market maker, a representative noise trader, and an insider trader. This one receives a continuous flow of information, while the market maker only knows the earning announcement and sets the price of the risky asset, as a rational price. Because of asymmetric information, a filtering problem is introduced, supposed to be linear, so a tool is Kalman-Bucy filter. The main result delivers that actually in equilibrium the insider's optimal strategy is a linear function of the market maker's estimation error of private information. The influence of risk aversion is studied. At last, we can stress that the introduction well comments the references and thus give a good ``state of the art''.
reviewed by: Monique Pontier
Mathematics Subject Classification ID: 91B52
Mathematics Subject Classification ID: 91B70
zbMATH DE Number: 5633341
zbMATH Keywords: Bayesian-Nash equilibrium
zbMATH Keywords: Kalman-Bucy filter
MaRDI profile type: Publication
full work available at URL: s10203-009-0093-8
OpenAlex ID: W2103199593
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DOI: 10.1007/S10203-009-0093-8
description: scientific article; zbMATH DE number 5633341