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Published / Preprint: Point process bridges and weak convergence of insider trading models. (arXiv:1205.4358v1 [math.PR])

May 22, 2012 by MoneyScience   Comments (0)

We construct explicitly a bridge process whose distribution, in its own filtration, is the same as the difference of two independent Poisson processes with the same intensity and its time 1 value satisfies a specific constraint. This construction allows us to show the existence of Glosten-Milgrom equilibrium and its associated optimal trading strategy for the insider. In the equilibrium the insider employs a mixed strategy to randomly submit two types of orders: one type trades in the same...

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