Kyle-Back equilibrium models and linear conditional mean-field SDEs

DOI10.1137/15M102558XMaRDI QIDQ4610157zbMATH OpenOpenAlexFDO

Authors

Publication date 5 April 2018

Published in SIAM Journal on Control and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1711.03223

zbMATH Keywords

conditional mean-field SDEsKyle-Back equilibriumoptimal closed-loop systemreference measuresstrategic insider trading

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Financial applications of other theories (91G80) Filtering in stochastic control theory (93E11)

Abstract: In this paper we study the Kyle-Back strategic insider trading equilibrium model in which the insider has an instantaneous information on an asset, assumed to follow an Ornstein-Uhlenback-type dynamics that allows possible influence by the market price. Such a model exhibits some further interplay between insider's information and the market price, and it is the first time being put into a rigorous mathematical framework of the recently developed {it conditional mean-field} stochastic differential equation (CMFSDEs). With the help of the "reference probability measure" concept in filtering theory, we shall first prove a general well-posedness result for a class of linear CMFSDEs, which is new in the literature of both filtering theory and mean-field SDEs, and will be the foundation for the underlying strategic equilibrium model. Assuming some further Gaussian structures of the model, we find a closed form of optimal intensity of trading strategy as well as the dynamic pricing rules. We shall also substantiate the well-posedness of the resulting optimal closed-loop system, whence the existence of Kyle-Back equilibrium. Our result recovers many existing results as special cases.

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Cited in

(16)

• Insider trading with a random deadline under partial observations: maximal principle method
• Linear Bayesian equilibrium in insider trading with a random time under partial observations
• Insider trading with memory under random deadline
• Weak Kyle-Back equilibrium models for Max and ArgMax
• KYLE–BACK’S MODEL WITH A RANDOM HORIZON
• On pricing rules and optimal strategies in general Kyle-Back models
• A general conditional McKean-Vlasov stochastic differential equation
• Kyle-back models with risk aversion and non-Gaussian beliefs
• Strategic trading with information acquisition and long-memory stochastic liquidity
• On the equilibrium of insider trading under information acquisition with long memory
• Information protocol equilibrium in n-insider perfect competition with a random deadline
• Study on different risk appetites and market structures insider trading under partially observation
• Equilibrium of insider trading on dynamic asset with stochastic liquidity under partial observations
• Linear quadratic optimal control problems for conditional mean-field stochastic differential equations under partial information
• Maximum principles for conditional mean field type control problems under partial and full observation with applications
• Insider trading at a random deadline with correlation between dynamic asset and stochastic liquidity

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