On The Equilibrium Of Insider Trading With Two Correlated Risky Assets

This paper studies the characteristics of insider trading with two correlated risk assets satisfying a joint normal distribution.First,the characteristics of insider trading on two correlated risky assets under three different market structures is studied,including a monopolistic market with a single insider,a Cournot game,and a Stackelberg game.We obtain both the optimal linear strategy and the semi-strong effective linear pricing rule under these three market structures respectively.It shows that at the equilibrium,the linear correlation of the two risk assets has the same effect on the ex ante profit of the insider trader under the three markets,that is,if the two risk assets are positively correlated,the insider's profit increases with the increasing correlation;if negatively correlated,the insider's profit decreases with the increase of the correlation.Secondly,we study the characteristics of insider trading under the market maker's overconfidence of correlation of two risky assets under three different market structures respectively.And we obtain the existence of equilibrium,consisting of the optimal linear insider trading strategy and the semi-strong effective linear pricing.It shows that at the equilibrium(respectively),the higher degree of the market maker's self-confidence,the more the insider can make ex ante profit.Finally,we study the characteristics of insider trading of two correlated risky assets under the influence of the noisy trading,and obtain the existence of equilibrium,consisting of both the optimal linear insider trading strategy and the semi-strong effective linear pricing.It shows that at the equilibrium(respectively),with the increase of the correlation between the noise trader's trading volume and the value of the underline risky assets,the insider will decrease the insider trading intensity gradually.