Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation

A model of insider trading in continuous time in which a risk-neutral insider possesses long-lived imperfect information on a risk asset is studied. By conditional expectation theory and filtering theory, we turn it into a model with insider knowing complete information about the asset with a revise...

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Autores principales:	Yonghui Zhou, Guanglong Zhuang, Kai Xiao
Formato:	article
Lenguaje:	EN
Publicado:	Hindawi-Wiley 2021
Materias:	Electronic computers. Computer science QA75.5-76.95
Acceso en línea:	https://doaj.org/article/f69c36fb313c41f4817f1ca9c2de9360
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spelling	oai:doaj.org-article:f69c36fb313c41f4817f1ca9c2de93602021-11-22T01:10:54ZContinuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation1099-052610.1155/2021/3549962https://doaj.org/article/f69c36fb313c41f4817f1ca9c2de93602021-01-01T00:00:00Zhttp://dx.doi.org/10.1155/2021/3549962https://doaj.org/toc/1099-0526A model of insider trading in continuous time in which a risk-neutral insider possesses long-lived imperfect information on a risk asset is studied. By conditional expectation theory and filtering theory, we turn it into a model with insider knowing complete information about the asset with a revised risky value and deduce its linear Bayesian equilibrium consisting of optimal insider trading strategy and semistrong pricing rule. It shows that, in the equilibrium, as the degree of insider observing the signal of the risky asset value is more and more accurate, market depth, trading intensity, and residual information are all decreasing and the total expectation profit of the insider is increasing and that the information about the asset value incorporated into the equilibrium price, which has nothing to do with the volatility of noise trades, is increasing as time goes by, but not all information of asset value is incorporated into the price in the final disclosed time due to the incompleteness of insider’s observation, though the market depth is still a time-independent constant. Some simulations are illustrated to show these features. However, it is an open question of how to make maximal profit if the insider is risk-averse.Yonghui ZhouGuanglong ZhuangKai XiaoHindawi-WileyarticleElectronic computers. Computer scienceQA75.5-76.95ENComplexity, Vol 2021 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Electronic computers. Computer science QA75.5-76.95
spellingShingle	Electronic computers. Computer science QA75.5-76.95 Yonghui Zhou Guanglong Zhuang Kai Xiao Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation
description	A model of insider trading in continuous time in which a risk-neutral insider possesses long-lived imperfect information on a risk asset is studied. By conditional expectation theory and filtering theory, we turn it into a model with insider knowing complete information about the asset with a revised risky value and deduce its linear Bayesian equilibrium consisting of optimal insider trading strategy and semistrong pricing rule. It shows that, in the equilibrium, as the degree of insider observing the signal of the risky asset value is more and more accurate, market depth, trading intensity, and residual information are all decreasing and the total expectation profit of the insider is increasing and that the information about the asset value incorporated into the equilibrium price, which has nothing to do with the volatility of noise trades, is increasing as time goes by, but not all information of asset value is incorporated into the price in the final disclosed time due to the incompleteness of insider’s observation, though the market depth is still a time-independent constant. Some simulations are illustrated to show these features. However, it is an open question of how to make maximal profit if the insider is risk-averse.
format	article
author	Yonghui Zhou Guanglong Zhuang Kai Xiao
author_facet	Yonghui Zhou Guanglong Zhuang Kai Xiao
author_sort	Yonghui Zhou
title	Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation
title_short	Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation
title_full	Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation
title_fullStr	Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation
title_full_unstemmed	Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation
title_sort	continuous-time insider trading with risk-neutral insider under imperfect observation
publisher	Hindawi-Wiley
publishDate	2021
url	https://doaj.org/article/f69c36fb313c41f4817f1ca9c2de9360
work_keys_str_mv	AT yonghuizhou continuoustimeinsidertradingwithriskneutralinsiderunderimperfectobservation AT guanglongzhuang continuoustimeinsidertradingwithriskneutralinsiderunderimperfectobservation AT kaixiao continuoustimeinsidertradingwithriskneutralinsiderunderimperfectobservation
_version_	1718418378537828352

Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation

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