Scandinavian Working Papers in Business Administration
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2019/3: Strategic Insider Trading in Continuous Time: A New Approach
Knut K. Aase () and Bernt Øksendal ()
Additional contact information
Knut K. Aase: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Bernt Øksendal: Dept. of Mathematics, University of Oslo, Postal: University of Oslo , Department of Mathematics, P.O. Box 1053 Blindern, N-0316 Oslo, Norway
Abstract: The continuous-time version of Kyle's (1985) model of asset pricing with asymmetric information is studied, and generalized by allowing time-varying noise trading. From rather simple assumptions we are able to derive the optimal trade for an insider; the trading intensity satisfies a deterministic integral equation, given perfect inside information, which we give a closed form solution to. We use a new technique called forward integration in order to find the optimal trading strategy. This is an extension of the stochastic integral which takes account of the informational asymmetry inherent in this problem. The market makers' price response is found by the use of filtering theory. The novelty is our approach, which could be extended in scope.
Keywords: Insider trading; asymmetric information; strategic trade; filtering theory; forward integration
JEL-codes: G00
29 pages, August 29, 2019
Full text files
2611571Full text
- Norwegian School of Economics, Department of Business and Management Science
- Ordering Working Papers
- Home page for this series
Questions (including download problems) about the papers in this series should be directed to Stein Fossen ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:nhhfms:2019_003This page generated on 2024-11-12 04:36:05.