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...

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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
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Abstract 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.
AbstractList 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.
Author Xiao, Kai
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Cites_doi 10.3934/math.2021772
10.2139/ssrn.3532495
10.1016/S1386-4181(01)00031-3
10.7737/MSFE.2013.19.1.011
10.1007/s007800200078
10.2307/1913210
10.1016/j.econmod.2021.02.001
10.1007/s10255-022-1112-6
10.1007/s11424-015-4186-x
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insider trading
linear bayesian equilibrium
partial observation
risk-seeking
Title Risk-seeking insider trading with partial observation in continuous time
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