Management Science and Financial Engineering

The Korean Operations Research and Management Science Society (한국경영과학회)
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A Risk-Averse Insider and Asset Pricing in Continuous Time

  • Lim, Byung Hwa (Graduate School of Financial Eng., The University of Suwon)
  • Received : 2012.10.15
  • Accepted : 2012.11.12
  • Published : 2013.05.31
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Abstract

This paper derives an equilibrium asset price when there exist three kinds of traders in financial market: a risk-averse informed trader, noise traders, and risk neutral market makers. This paper is an extended version of Kyle's (1985, Econometrica) continuous time model by introducing insider's risk aversion. We obtain not only the equilibrium asset pricing and market depth parameter but also insider's value function and optimal insider's trading strategy explicitly. The comparative static shows that the market depth (the reciprocal of market pressure) increases with time and volatility of noise traders' trading.

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References

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