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Equilibrium model with default and insider's dynamic information

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Date
2013
Link to item file
http://hal.archives-ouvertes.fr/hal-00613216/fr/
Dewey
Economie financière
Sujet
Default time; defaultable claim; equilibrium; dynamic information; insider trading; dynamic Bessel bridge
JEL code
G14; D82
Journal issue
Finance and Stochastics
Volume
17
Number
3
Publication date
2013
Article pages
565-585
Publisher
Springer
DOI
http://dx.doi.org/10.1007/s00780-012-0196-x
URI
https://basepub.dauphine.fr/handle/123456789/6880
Collections
  • CEREMADE : Publications
Metadata
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Author
Campi, Luciano
Cetin, Umut
Danilova, Albina
Type
Article accepté pour publication ou publié
Abstract (EN)
We consider an equilibrium model á la Kyle-Back for a defaultable claim issued by a given firm. In such a market the insider observes \emph{continuously in time} the value of firm, which is unobservable by the market maker. Using the construction of a dynamic Bessel bridge of dimension $3$ in Campi, \c Cetin and Danilova (2010), we provide the equilibrium price and the optimal insider's strategy. As in Campi and \c Cetin (2007), the information released by the insider while trading optimally makes the default time predictable in 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 insider's information in the special cases of a defaultable stock and a bond.

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