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Probability and Computational Finance Seminar
Kevin Ou
Carnegie Mellon University
Title: Continuous Time Equilibrium of Monopolistic Insider Trading - Back's 1992 Model

Abstract: Traditional math finance studies asset prices and allocations assuming perfect and symmetric information distribution among agents. Kyle pioneered the studies of equilibrium models with a monopolist of information under a sequential trading mechanism in his seminal paper published in 1985. Albeit its insights of market qualities (liquidity and informativeness), Kyle's model has rather restrictive assumptions and unsatisfactory mathematical representations especially in continuous time, limiting its explanatory power of the real world markets. Back in 1992 generalized Kyle's continuous time model to include a much larger class of scenarios, and gave a solid mathematical presentation of the unique existence of equilibrium, using the theory of general semimartingales. This talk will introduce information asymmetry, sequential trading, and Nash equilibrium from Kyle, then apply stochastic calculus, optimization and PDE techniques to reproduce theorems of Back's paper.

Date: Monday, September 19, 2016
Time: 4:30 pm
Location: Wean Hall 8220
Submitted by:  Steve Shreve