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Probability and Computational Finance Seminar
Umut Cetin LSE Title: Linear Inverse Problems and Market Microstructure Abstract: In the setting of Kyle's model we discuss the connection between the existence of an equilibrium in a financial market with asymmetrically informed agents and the solutions to a class of linear inverse problems with kernels given by the transition functions of a Markov process. In particular we will observe that when the informed trader receives a continuous signal changing over time and the market makers are risk averse, existence of an equilibrium becomes related to an ill-posed inverse problem for a backward parabolic equation with a given initial condition. A necessary and sufficient condition will be given in order for the inverse problem to have a solution in some L^2 -space. For a transient diffusion this condition can be interpreted in terms of its last passage times. Date: Monday, March 30, 2015 Time: 4:30 pm Location: Wean Hall 6423 Submitted by: Kasper Larsen |