nep-mst New Economics Papers
on Market Microstructure
Issue of 2019‒09‒09
three papers chosen by
Thanos Verousis
  1. Strategic Insider Trading in Continuous Time: A New Approach By Aase, Knut K.; Øksendal, Bernt
  2. Strategic Insider Trading Equilibrium with a non-fiduciary market maker By Aase, Knut K.; Øksendal, Bernt
  3. Dynamic Price Discovery in Chinese Agricultural Futures Markets By Li, Miao; Xiong, Tao
  1. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics); Øksendal, Bernt (Dept. of Mathematics, University of Oslo)
    Abstract: The continuous-time version of Kyle's (1985) model of asset pricing with asymmetric information is studied, and generalized by allowing time-varying noise trading. From rather simple assumptions we are able to derive the optimal trade for an insider; the trading intensity satisfies a deterministic integral equation, given perfect inside information, which we give a closed form solution to. We use a new technique called forward integration in order to find the optimal trading strategy. This is an extension of the stochastic integral which takes account of the informational asymmetry inherent in this problem. The market makers' price response is found by the use of filtering theory. The novelty is our approach, which could be extended in scope.
    Keywords: Insider trading; asymmetric information; strategic trade; filtering theory; forward integration
    JEL: G00
    Date: 2019–08–29
    URL: http://d.repec.org/n?u=RePEc:hhs:nhhfms:2019_003&r=all
  2. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics); Øksendal, Bernt (Dept. of Mathematics, University of Oslo)
    Abstract: The continuous-time version of Kyle's (1985) model is studied, in which market makers are not fiduciaries. They have some market power which they utilize to set the price to their advantage, resulting in positive expected profits. This has several implications for the equilibrium, the most important being that by setting a modest fee conditional of the order ow, the market maker is able to obtain a profit of the order of magnitude, and even better than, a perfectly informed insider. Our model also indicates why speculative prices are more volatile than predicted by fundamentals.
    Keywords: Insider trading; asymmetric information; strategic trade; price distortion; non-fiduciary market maker; bid-ask spread; linear filtering theory; innovation equation
    JEL: G00
    Date: 2019–08–28
    URL: http://d.repec.org/n?u=RePEc:hhs:nhhfms:2019_002&r=all
  3. By: Li, Miao; Xiong, Tao
    Keywords: Agribusiness
    Date: 2019–06–25
    URL: http://d.repec.org/n?u=RePEc:ags:aaea19:290676&r=all
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