Pricing rules under asymmetric information

Shigeyoshi Ogawa; Monique Pontier

ESAIM: Probability and Statistics (2007)

  • Volume: 11, page 80-88
  • ISSN: 1292-8100

Abstract

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We consider an extension of the Kyle and Back's model [Back, Rev. Finance Stud.5 (1992) 387–409; Kyle, Econometrica35 (1985) 1315–1335], meaning a model for the market with a continuous time risky asset and asymmetrical information. There are three financial agents: the market maker, an insider trader (who knows a random variable V which will be revealed at final time) and a non informed agent. Here we assume that the non informed agent is strategic, namely he/she uses a utility function to optimize his/her strategy. Optimal control theory is applied to obtain a pricing rule and to prove the existence of an equilibrium price when the insider trader and the non informed agent are risk-neutral. We will show that if such an equilibrium exists, then the non informed agent's optimal strategy is to do nothing, in other words to be non strategic.

How to cite

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Ogawa, Shigeyoshi, and Pontier, Monique. "Pricing rules under asymmetric information." ESAIM: Probability and Statistics 11 (2007): 80-88. <http://eudml.org/doc/250105>.

@article{Ogawa2007,
abstract = { We consider an extension of the Kyle and Back's model [Back, Rev. Finance Stud.5 (1992) 387–409; Kyle, Econometrica35 (1985) 1315–1335], meaning a model for the market with a continuous time risky asset and asymmetrical information. There are three financial agents: the market maker, an insider trader (who knows a random variable V which will be revealed at final time) and a non informed agent. Here we assume that the non informed agent is strategic, namely he/she uses a utility function to optimize his/her strategy. Optimal control theory is applied to obtain a pricing rule and to prove the existence of an equilibrium price when the insider trader and the non informed agent are risk-neutral. We will show that if such an equilibrium exists, then the non informed agent's optimal strategy is to do nothing, in other words to be non strategic. },
author = {Ogawa, Shigeyoshi, Pontier, Monique},
journal = {ESAIM: Probability and Statistics},
keywords = {Equilibrium; optimal control; asymmetric information.; equilibrium; asymmetric information},
language = {eng},
month = {3},
pages = {80-88},
publisher = {EDP Sciences},
title = {Pricing rules under asymmetric information},
url = {http://eudml.org/doc/250105},
volume = {11},
year = {2007},
}

TY - JOUR
AU - Ogawa, Shigeyoshi
AU - Pontier, Monique
TI - Pricing rules under asymmetric information
JO - ESAIM: Probability and Statistics
DA - 2007/3//
PB - EDP Sciences
VL - 11
SP - 80
EP - 88
AB - We consider an extension of the Kyle and Back's model [Back, Rev. Finance Stud.5 (1992) 387–409; Kyle, Econometrica35 (1985) 1315–1335], meaning a model for the market with a continuous time risky asset and asymmetrical information. There are three financial agents: the market maker, an insider trader (who knows a random variable V which will be revealed at final time) and a non informed agent. Here we assume that the non informed agent is strategic, namely he/she uses a utility function to optimize his/her strategy. Optimal control theory is applied to obtain a pricing rule and to prove the existence of an equilibrium price when the insider trader and the non informed agent are risk-neutral. We will show that if such an equilibrium exists, then the non informed agent's optimal strategy is to do nothing, in other words to be non strategic.
LA - eng
KW - Equilibrium; optimal control; asymmetric information.; equilibrium; asymmetric information
UR - http://eudml.org/doc/250105
ER -

References

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