A new equilibrium trading model with asymmetric information

Taking arbitrage opportunities into consideration in an incomplete market, dealers will pricebonds based on asymmetric information. The dealer with the best offering price wins the bid. The riskpremium in dealer’s offering price is primarily determined by the dealer’s add-on rate of change tothe ter...

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Bibliographic Details
Main Authors:	Lianzhang Bao, Guangliang Zhao, Zhuo Jin
Format:	Article
Language:	English
Published:	AIMS Press 2018-03-01
Series:	Quantitative Finance and Economics
Subjects:	stochastic control\| equilibrium trading\| asymmetric information\| incomplete market
Online Access:	http://www.aimspress.com/article/10.3934/QFE.2018.1.217/fulltext.html

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spelling	doaj-ce1f135046bb41458481baefc9d1a36b2020-11-24T22:53:28ZengAIMS PressQuantitative Finance and Economics2573-01342018-03-012121722910.3934/QFE.2018.1.217A new equilibrium trading model with asymmetric informationLianzhang Bao0Guangliang Zhao1Zhuo Jin21 School of Mathematics, Jilin University, Changchun, Jilin 130012, China, and School of Mathematical Sciences, Zhejiang University, Hangzhou, Zhejiang 310027, China2 GE Global Research, Niskayuna, NY, 12309, USA3 Centre for Actuarial Studies, Department of Economics, The University of Melbourne, VIC 3010, AustraliaTaking arbitrage opportunities into consideration in an incomplete market, dealers will pricebonds based on asymmetric information. The dealer with the best offering price wins the bid. The riskpremium in dealer’s offering price is primarily determined by the dealer’s add-on rate of change tothe term structure. To optimize the trading strategy, a new equilibrium trading model is introduced.Optimal sequential estimation scheme for detecting the risk premium due to private inforamtion isproposed based on historical prices, and the best bond pricing formula is given with the accordingoptimal trading strategy. Numerical examples are provided to illustrate the economic insights underthe certain stochastic term structure interest rate models.http://www.aimspress.com/article/10.3934/QFE.2018.1.217/fulltext.htmlstochastic control\| equilibrium trading\| asymmetric information\| incomplete market
collection	DOAJ
language	English
format	Article
sources	DOAJ
author	Lianzhang Bao Guangliang Zhao Zhuo Jin
spellingShingle	Lianzhang Bao Guangliang Zhao Zhuo Jin A new equilibrium trading model with asymmetric information Quantitative Finance and Economics stochastic control\| equilibrium trading\| asymmetric information\| incomplete market
author_facet	Lianzhang Bao Guangliang Zhao Zhuo Jin
author_sort	Lianzhang Bao
title	A new equilibrium trading model with asymmetric information
title_short	A new equilibrium trading model with asymmetric information
title_full	A new equilibrium trading model with asymmetric information
title_fullStr	A new equilibrium trading model with asymmetric information
title_full_unstemmed	A new equilibrium trading model with asymmetric information
title_sort	new equilibrium trading model with asymmetric information
publisher	AIMS Press
series	Quantitative Finance and Economics
issn	2573-0134
publishDate	2018-03-01
description	Taking arbitrage opportunities into consideration in an incomplete market, dealers will pricebonds based on asymmetric information. The dealer with the best offering price wins the bid. The riskpremium in dealer’s offering price is primarily determined by the dealer’s add-on rate of change tothe term structure. To optimize the trading strategy, a new equilibrium trading model is introduced.Optimal sequential estimation scheme for detecting the risk premium due to private inforamtion isproposed based on historical prices, and the best bond pricing formula is given with the accordingoptimal trading strategy. Numerical examples are provided to illustrate the economic insights underthe certain stochastic term structure interest rate models.
topic	stochastic control\| equilibrium trading\| asymmetric information\| incomplete market
url	http://www.aimspress.com/article/10.3934/QFE.2018.1.217/fulltext.html
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A new equilibrium trading model with asymmetric information

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