On The Optimal Strategies In Continuous Insider Trading Under Distortion Of Semi-strong Pricing Rule

This paper mainly studies a type of continuous insider trading under distortion of semi-strong pricing rule of risk asset.The optimal trading strategy and market characteristics of insider trading in this financial risk market are discussed.Firstly,we study a continuous insider trading model in which a risk asset is static,market makers have some degree of distortion of a semi-strong pricing rule of the risk asset,and an insider adopts trading strategies that do not rely on the market price,and mainly investigate some characteristics of market equilibria when the insider observes complete or non-complete information on the risk asset respectively.By using the Kalman-Bucy filter theory,we obtain an optimal insider trading strategy that does not rely on the distortion of the semi-strong pricing rule.It shows that in the market equilibrium,the best trading intensity of the insider reaches infinity at the last trading moment,the optimal profit of insider is positively related to the deviation degree of the semi-strong pricing rule,the remaining information on the risk asset is a semi-martingale,the private information processed by the insider is not fully incorporated into market pricing at the last moment,and the more accurate information observed by the insider,the more profit can be made.Secondly,we study the model of risk assets as dynamic continuous insider trading,in which market makers not only observe the total amount of risky assets but also observe some information about dynamic risky assets.The Kalman-Bucy filtering theory is also applied to obtain an optimal insider trading strategy that does not rely on pricing deviations,and it is found that the optimal trading intensity of the insider reaches infinity at the last moment;The optimal profit is positively related to the deviation of pricing.The private information of the insider is not fully incorporated into the market pricing at the final moment;The more accurate the risk asset signals observed by the market,the less profitable the insider.