The Mixed Equilibrium Of Insider Trading Models With Two Insiders

This paper extends Gong and Liu’s model (2012). When considering a mixed strategy equilibrium of two internal private traders with the same information, the probability distribution of the two insider traders taking part in trading or not is extended to (σ,1-σ) with 0<σ<1, not just (1/2,1/2). The existence and uniqueness of mixed strategy equilibrium are proved to the risk preferences of internal trader model, the internal risk-neutral trader model, and the internal risk-averse trader model respectively. Furthermore, the speeds of the key variables in equilibrium tended to zero or infinity are calculated, the limits of the normalized variables which are these key variables divided by their speeds tended to zero or infinity were obtained, and the economical and financial characteristics of the equilibrium in high frequency trading are analyized.