Volume 11, February 2007Special Issue: "Stochastic analysis and mathematical finance" in honor of Nicole El Karoui's 60th birthday
|Page(s)||80 - 88|
|Published online||01 March 2007|
Pricing rules under asymmetric information
Department of Mathematical Sciences Ritsumeikan University, Kusatsu, Shiga, 525-8577 Japan; email@example.com
2 U.M.R. CNRS C 5583, Laboratoire de statistique et probabilités, Université Paul Sabatier, 118 route de Narbonne, 31062 Toulouse Cedex 04, France; firstname.lastname@example.org
Accepted: September 2005
We consider an extension of the Kyle and Back's model [Back, Rev. Finance Stud. 5 (1992) 387–409; Kyle, Econometrica 35 (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.
Mathematics Subject Classification: 49N30 / 60H10 / 93E20
Key words: Equilibrium / optimal control / asymmetric information.
© EDP Sciences, SMAI, 2007
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