Campi, Luciano, Cetin, Umut 
ORCID: 0000-0001-8905-853X and Danilova, Albina
(2013)
Equilibrium model with default and dynamic insider information.
Finance and Stochastics, 17 (347).
pp. 565-585.
ISSN 0949-2984
Abstract
We consider an equilibrium model à la Kyle–Back for a defaultable claim issued by a given firm. In such a market the insider observes continuously in time the value of the firm, which is unobservable by the market makers. Using the construction in Campi et al. (http://hal.archives-ouvertes.fr/hal-00534273/en/, 2011) of a dynamic three-dimensional Bessel bridge, we provide the equilibrium price and the insider’s optimal strategy. As in Campi and Çetin (Finance Stoch. 11:591–602, 2007), the information released by the insider while trading optimally makes the default time predictable in the market’s view at the equilibrium. We conclude the paper by comparing the insider’s expected profits in the static and dynamic private information case. We also compute explicitly the value of the insider’s information in the special cases of a defaultable stock and a bond.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.springerlink.com/content/101164/?MUD=MP |
| Additional Information: | © 2012 Springer |
| Divisions: | Mathematics Statistics |
| Subjects: | H Social Sciences > HA Statistics Q Science > QA Mathematics |
| JEL classification: | D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies |
| Date Deposited: | 15 Nov 2012 15:41 |
| Last Modified: | 01 Apr 2024 08:20 |
| URI: | http://eprints.lse.ac.uk/id/eprint/45261 |
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