Risk-seeking insider trading with partial observation in continuous time

In this paper, a continuous-time insider trading model is investigated in which an insider is risk-seeking and market makers may receive partial information on the value of a risky asset. With the help of filtering theory and dynamic programming principle, the uniqueness and existence of linear equi...

Full description

Saved in:
Bibliographic Details
Published inAIMS mathematics Vol. 8; no. 11; pp. 28143 - 28152
Main Author Xiao, Kai
Format Journal Article
LanguageEnglish
Published AIMS Press 01.01.2023
Subjects
hjb
insider trading
linear bayesian equilibrium
partial observation
risk-seeking
Online AccessGet full text

Cover

More Information
Summary:In this paper, a continuous-time insider trading model is investigated in which an insider is risk-seeking and market makers may receive partial information on the value of a risky asset. With the help of filtering theory and dynamic programming principle, the uniqueness and existence of linear equilibrium is established. It shows that (ⅰ) as time goes by, the residual information decreases, but both the trading intensity and the market liquidity increases, and (ⅱ) with the partial observation accuracy decreasing, both the market liquidity and the residual information will increase while the trading intensity decreases. On the whole, the risk-seeking insider is eager to trade all the trading period, and for market development, it is necessary to increase the insider's risk-preference behavior appropriately.
ISSN:2473-6988
2473-6988
DOI:10.3934/math.20231440