Insider trading under discreteness

Publication Type:
Journal Article
Citation:
International Journal of Theoretical and Applied Finance, 2011, 14 (5), pp. 757 - 771
Issue Date:
2011-08-01
Full metadata record
Files in This Item:
Filename Description Size
Thumbnail2010005974OK.pdf364.75 kB
Adobe PDF
This paper analyzes a version of the static Kyle's (1985) model of insider trading where both the distribution of the liquidation value of the risky asset and the distribution of the order flow of noise traders are discrete. We derive necessary and sufficient conditions for the existence of perfect Bayesian equilibria where the insider's strategy is increasing in the value of the asset, and show that such equilibria can be constructed if and only if the variance of the asset is not too extreme. The results in this paper are relevant in contexts where a discrete version of the static Kyle's (1985) model might be a convenient modelling choice. © 2011 World Scientific Publishing Company.
Please use this identifier to cite or link to this item: