On The Equilibria Of Inside Trading Games Under Market Regulation

This thesis proposes some insider trading games under some market regulations,and studies characteristics of their markets at some kind of linear equilibria.Firstly,we consider insider trading models under market regulation with three different market structures but without pricing costs,in which a heuristic insider processes private information and shares some public information with market makers.We investigate for each of the three market the existence of linear market equilibrium,consisting of optimal trading strategy,effective pricing rule and optimal regulation,and analyse the influence of public information accuracy or the heuristic parameter on market characteristics in equilibrium.It shows that there is a unique linear equilibrium ether in monopoly market or in Cournot market,but there is no linear equilibrium in stackelberg market.Furthermore,when the former two markets are in their corresponding equilibria,market characteristics are the same,that is,the smaller the accuracy of public information is,the larger the total lost of noisy traders is,the stronger the degree of regulatory is but the less the market depth is,while the larger the heuristic parameter is,the more profit the heuristic insider makes,the stronger the degree of regulatory is but the market depth keeps constant.Secondly,we allow market makers to make profits with pricing costs in the previous three models of insider trading.And we prove for each of the tree models the existence and uniqueness of linear equilibrium.It shows that when in each of the tree equilibria,the larger the pricing cost coefficient is,the more profits the market makers earn,but the weaker the degree of regulatory is,while the market depth keeps constant.Finally,we compare some equilibrium results of insider trading between the two cases of pricing costs and no pricing costs with different market structures.It shows that in the same market structure,the loss of noisy traders in insider trading with no pricing cost is smaller than those with pricing cost,and the degree of regulatory is more stronger.When there is no pricing cost,although the loss of noisy traders is the same both in monopoly market and Cournot game,the degree of regulatory in Cournot game is stronger than that in monopoly market.When there is pricing cost,the noisy traders have the same loss in monopoly market,Cournot game and stackelberg game,but the market maker gains the least in stackelberg game.However,the market depth is independent of pricing costs and market structures.