Short Note on Kyle's Equilibrium Class

Journal Title: Asian Research Journal of Mathematics - Year 2017, Vol 2, Issue 1

Abstract

The asymmetric information plays critical role in all economics. In the presence of asymmetric information in a given market, market prices of assets are different with those prices under the no arbitrage assumption. It has fundamental effects on the market equilibrium. [1] considered three types of traders: noise trader, informed trader and market maker in a given market in the presence of asymmetric information property. He derived the equilibrium prices of assets. In this short note, Kyle's results are extended. It is seen that a class of equilibrium prices exists, referred as the Kyle's equilibrium class. To this end, first, it is proved that there is a simple linear relation between the variance of equilibrium price and the variance of traded asset size. Then, this simple relation is replaced with a general linear relation. By maximizing the profit function of informed trader, in this case, the Kyle's equilibrium class is derived. Simulation results are also given. Finally, a conclusion section is given.

Authors and Affiliations

Reza Habibi

Keywords

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  • EP ID EP338337
  • DOI 10.9734/ARJOM/2017/29175
  • Views 138
  • Downloads 0

How To Cite

Reza Habibi (2017). Short Note on Kyle's Equilibrium Class. Asian Research Journal of Mathematics, 2(1), 1-5. https://europub.co.uk/articles/-A-338337