Kyle-back models with risk aversion and non-Gaussian beliefs

DOI10.1214/22-AAP1905arXiv2008.06377OpenAlexW3049631296MaRDI QIDQ6138899FDOQ6138899

Authors: Shreya Bose, Ibrahim Ekren 

Publication date: 16 January 2024

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: We show that the problem of existence of equilibrium in Kyle's continuous time insider trading model can be tackled by considering a forward-backward system coupled via an optimal transport type constraint at maturity. The forward component is a stochastic differential equation representing an endogenously determined state variable and the backward component is a quasilinear parabolic equation representing the pricing function. By obtaining a stochastic representation for the solution of such a system, we show the well-posedness of solutions and study the properties of the equilibrium obtained for small enough risk aversion parameter. In our model, the insider has exponential type utility and the belief of the market maker on the distribution of the price at final time can be non-Gaussian.

Full work available at URL: https://arxiv.org/abs/2008.06377

Recommendations

• Multidimensional Kyle-Back model with a risk averse informed trader
• Kyle-Back equilibrium models and linear conditional mean-field SDEs
• An equilibrium model of insider trading in continuous time
• Trading Constraints in Continuous-Time Kyle Models

zbMATH Keywords

optimal transportMarkov bridgesquasilinear partial differential equationsKyle's model with risk averse informed trader

Mathematics Subject Classification ID

Diffusion processes (60J60) Applications of stochastic analysis (to PDEs, etc.) (60H30) Economics of information (91B44)

Cites Work

• Polar factorization and monotone rearrangement of vector‐valued functions
• Functional Itō calculus and stochastic integral representation of martingales
• Viscosity solutions of fully nonlinear parabolic path dependent PDEs. I.
• Title not available (Why is that?)
• Existence and uniqueness of monotone measure-preserving maps
• Continuous Auctions and Insider Trading
• Monotonicity properties of optimal transportation and the FKG and related inequalities
• Functional Itô calculus
• On Sobolev regularity of mass transport and transportation inequalities
• Markovian Nash equilibrium in financial markets with asymmetric information and related forward-backward systems
• Continuous auctions and insider trading: uniqueness and risk aversion
• Insider trading in an equilibrium model with default: a passage from reduced-form to structural modelling
• Dynamic Markov bridges motivated by models of insider trading
• Stability of solutions of quasilinear parabolic equations
• Asymmetric information and imperfect competition in a continuous time multivariate security model
• Risk aversion, imperfect competition, and long-lived information
• Activism, strategic trading, and liquidity
• Comparison and stability of solutions to a class of quasilinear parabolic problems
• Option pricing with linear market impact and nonlinear Black-Scholes equations
• Partially informed noise traders
• Insider trading equilibrium in a market with memory
• Insider trading, stochastic liquidity, and equilibrium prices
• Second-order stochastic target problems with generalized market impact
• Probability density function of SDEs with unbounded and path-dependent drift coefficient
• Kyle equilibrium under random price pressure
• The multivariate Kyle model: more is different
• On pricing rules and optimal strategies in general Kyle-Back models
• On the maximum principle for quasi-linear parabolic equations of the second order

Cited In (1)

• Multidimensional Kyle-Back model with a risk averse informed trader

This page was built for publication: Kyle-back models with risk aversion and non-Gaussian beliefs

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6138899)