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Optimization, Filtering, and Bridges in an Equilibrium Model of Informed Security Trading


Speaker: Kerry Back, Rice University
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Location: 3106 MSB
Start time: Thu, May 7 2015, 2:00PM

In securities markets, investors infer information from orders, and traders adjust their order strategies to try to hide their information. Equilibrium involves filtering by uninformed investors and optimal control by informed investors. The equilibrium order flow process is a Brownian or Markov bridge from the perspective of an informed investor, and it is Brownian motion from the perspective of uninformed investors.