Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation

<div>Market liquidity <span class="nowrap"><svg height="9.49473pt" id="M171" style="vertical-align:-0.2063999pt" version="1.1" viewbox="-0.0498162 -9.28833 7.30254 9.49473" width="7.30254pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M529 97L508 118C475 75 449 58 438 58C428 58 421 66 415 104C393 234 374 403 364 496C345 670 307 712 254 712C220 712 174 691 153 669L161 645C176 653 194 658 206 658C237 658 261 640 278 562C287 522 290 483 293 434C223 269 110 105 23 9L32 -12C59 -6 85 0 108 7C152 64 251 252 300 366C307 297 315 221 337 82C346 24 363 -12 393 -12C425 -12 475 13 529 97Z"></path></g></svg>,</span> trading intensity <span class="nowrap"><svg height="12.7178pt" id="M172" style="vertical-align:-3.42947pt" version="1.1" viewbox="-0.0498162 -9.28833 7.68094 12.7178" width="7.68094pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M558 587C558 666 497 712 432 712C379 712 330 691 284 650C212 586 178 508 148 348L71 -65C49 -185 35 -229 23 -235L27 -261C49 -259 101 -251 124 -224C131 -216 138 -178 159 -24C171 66 197 200 227 356C264 550 295 668 393 668C443 668 479 632 479 575C479 516 446 458 383 418C361 404 344 398 318 397L296 350C395 338 460 281 460 192C460 110 411 40 300 40C258 40 215 55 192 69L181 51C191 18 222 -16 266 -16C308 -16 351 1 397 26C471 67 545 142 545 221C545 315 486 365 401 395C469 437 558 498 558 587Z"></path></g></svg>,</span> residual information <span class="nowrap"><svg height="8.68572pt" id="M173" style="vertical-align:-0.0498209pt" version="1.1" viewbox="-0.0498162 -8.6359 7.90278 8.68572" width="7.90278pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M570 168L541 175C510 88 481 71 415 71H135L378 358L167 614H348C422 614 447 608 463 588C478 571 488 546 500 500L529 504C524 559 519 633 518 650H47V628L295 324L33 23V0H531L570 168Z"></path></g></svg>,</span> and insider’s total expectation profit <svg height="11.5564pt" id="M174" style="vertical-align:-2.26807pt" version="1.1" viewbox="-0.0498162 -9.28833 25.2185 11.5564" width="25.2185pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M593 650H142L136 622C219 616 224 611 209 531L130 120C114 39 108 34 23 28L17 0H501C518 32 557 130 568 158L540 169C519 132 495 93 469 70C439 43 409 35 332 35C272 35 241 37 225 50C211 61 211 89 222 149L253 320H350C441 320 443 312 441 239H471L510 434H481C455 366 448 358 360 358H260L303 572C311 613 312 615 348 615H431C509 615 522 603 532 581C544 555 546 531 545 491L574 493C583 555 592 631 593 650Z"></path></g><g transform="matrix(.013,0,0,-0.013,8.008,0)"><path d="M300 -147C201 -63 143 98 143 270S200 602 300 686L282 710C136 610 70 450 70 271V270C70 89 136 -72 282 -170L300 -147Z"></path></g><g transform="matrix(.013,0,0,-0.013,12.506,0)"><path d="M600 480C600 590 528 650 384 650H143L137 622C222 614 225 607 210 531L130 127C113 41 106 36 23 28L17 0H294L300 28C204 36 195 42 212 127L243 284L314 263C327 263 339 263 352 264C465 271 600 337 600 480ZM508 481C508 351 402 304 329 304C289 304 265 311 250 317L295 559C302 594 310 606 323 611C335 616 350 619 367 619C455 619 508 573 508 481Z"></path></g><g transform="matrix(.013,0,0,-0.013,20.532,0)"><path d="M275 270C275 450 212 609 64 710L45 686C145 604 203 442 203 270S147 -63 45 -147L64 -170C213 -68 275 89 275 270Z"></path></g></svg> varying with volatility <svg height="15.535pt" id="M175" style="vertical-align:-3.9436pt" version="1.1" viewbox="-0.0498162 -11.5914 12.4186 15.535" width="12.4186pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,7.347,-5.741)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,6.76,3.784)"><path d="M396 374C396 399 365 451 262 451C173 451 84 405 84 327C84 295 107 257 157 243V241C91 226 24 184 24 119C24 41 92 -12 189 -12C272 -12 344 31 386 91L367 118C325 76 274 50 222 50C163 50 120 84 120 138C120 191 169 218 223 218C247 218 263 217 278 216L312 260L308 267H259C200 267 167 297 167 338S202 414 250 414C297 414 326 387 336 341C338 331 341 328 349 328C361 328 396 349 396 374Z"></path></g></svg> of noise in risk asset value at different time <span class="nowrap"><svg height="8.02022pt" id="M176" style="vertical-align:-0.2063999pt" version="1.1" viewbox="-0.0498162 -7.81382 4.54925 8.02022" width="4.54925pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M324 430H196L233 583L223 592L145 529L120 430H54L29 396L31 388H111L56 126C33 15 54 -12 77 -12C137 -12 214 57 250 95L233 119C208 92 155 59 138 59C126 59 120 70 131 125L186 390L298 394L324 430Z"></path></g></svg>.</span> (a) <svg height="9.49473pt" id="M177" style="vertical-align:-0.2063999pt" version="1.1" viewbox="-0.0498162 -9.28833 7.30254 9.49473" width="7.30254pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M529 97L508 118C475 75 449 58 438 58C428 58 421 66 415 104C393 234 374 403 364 496C345 670 307 712 254 712C220 712 174 691 153 669L161 645C176 653 194 658 206 658C237 658 261 640 278 562C287 522 290 483 293 434C223 269 110 105 23 9L32 -12C59 -6 85 0 108 7C152 64 251 252 300 366C307 297 315 221 337 82C346 24 363 -12 393 -12C425 -12 475 13 529 97Z"></path></g></svg> varying with <span class="nowrap"><svg height="15.535pt" id="M178" style="vertical-align:-3.9436pt" version="1.1" viewbox="-0.0498162 -11.5914 12.4186 15.535" width="12.4186pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,7.347,-5.741)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,6.76,3.784)"><path d="M396 374C396 399 365 451 262 451C173 451 84 405 84 327C84 295 107 257 157 243V241C91 226 24 184 24 119C24 41 92 -12 189 -12C272 -12 344 31 386 91L367 118C325 76 274 50 222 50C163 50 120 84 120 138C120 191 169 218 223 218C247 218 263 217 278 216L312 260L308 267H259C200 267 167 297 167 338S202 414 250 414C297 414 326 387 336 341C338 331 341 328 349 328C361 328 396 349 396 374Z"></path></g></svg>.</span> (b) <svg height="12.7178pt" id="M179" style="vertical-align:-3.42947pt" version="1.1" viewbox="-0.0498162 -9.28833 7.68094 12.7178" width="7.68094pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M558 587C558 666 497 712 432 712C379 712 330 691 284 650C212 586 178 508 148 348L71 -65C49 -185 35 -229 23 -235L27 -261C49 -259 101 -251 124 -224C131 -216 138 -178 159 -24C171 66 197 200 227 356C264 550 295 668 393 668C443 668 479 632 479 575C479 516 446 458 383 418C361 404 344 398 318 397L296 350C395 338 460 281 460 192C460 110 411 40 300 40C258 40 215 55 192 69L181 51C191 18 222 -16 266 -16C308 -16 351 1 397 26C471 67 545 142 545 221C545 315 486 365 401 395C469 437 558 498 558 587Z"></path></g></svg> varying with <span class="nowrap"><svg height="15.535pt" id="M180" style="vertical-align:-3.9436pt" version="1.1" viewbox="-0.0498162 -11.5914 12.4186 15.535" width="12.4186pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,7.347,-5.741)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,6.76,3.784)"><path d="M396 374C396 399 365 451 262 451C173 451 84 405 84 327C84 295 107 257 157 243V241C91 226 24 184 24 119C24 41 92 -12 189 -12C272 -12 344 31 386 91L367 118C325 76 274 50 222 50C163 50 120 84 120 138C120 191 169 218 223 218C247 218 263 217 278 216L312 260L308 267H259C200 267 167 297 167 338S202 414 250 414C297 414 326 387 336 341C338 331 341 328 349 328C361 328 396 349 396 374Z"></path></g></svg>.</span> (c) <svg height="8.68572pt" id="M181" style="vertical-align:-0.0498209pt" version="1.1" viewbox="-0.0498162 -8.6359 7.90278 8.68572" width="7.90278pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M570 168L541 175C510 88 481 71 415 71H135L378 358L167 614H348C422 614 447 608 463 588C478 571 488 546 500 500L529 504C524 559 519 633 518 650H47V628L295 324L33 23V0H531L570 168Z"></path></g></svg> varying with <span class="nowrap"><svg height="15.535pt" id="M182" style="vertical-align:-3.9436pt" version="1.1" viewbox="-0.0498162 -11.5914 12.4186 15.535" width="12.4186pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,7.347,-5.741)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,6.76,3.784)"><path d="M396 374C396 399 365 451 262 451C173 451 84 405 84 327C84 295 107 257 157 243V241C91 226 24 184 24 119C24 41 92 -12 189 -12C272 -12 344 31 386 91L367 118C325 76 274 50 222 50C163 50 120 84 120 138C120 191 169 218 223 218C247 218 263 217 278 216L312 260L308 267H259C200 267 167 297 167 338S202 414 250 414C297 414 326 387 336 341C338 331 341 328 349 328C361 328 396 349 396 374Z"></path></g></svg>.</span> (d) <svg height="11.5564pt" id="M183" style="vertical-align:-2.26807pt" version="1.1" viewbox="-0.0498162 -9.28833 25.2185 11.5564" width="25.2185pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M593 650H142L136 622C219 616 224 611 209 531L130 120C114 39 108 34 23 28L17 0H501C518 32 557 130 568 158L540 169C519 132 495 93 469 70C439 43 409 35 332 35C272 35 241 37 225 50C211 61 211 89 222 149L253 320H350C441 320 443 312 441 239H471L510 434H481C455 366 448 358 360 358H260L303 572C311 613 312 615 348 615H431C509 615 522 603 532 581C544 555 546 531 545 491L574 493C583 555 592 631 593 650Z"></path></g><g transform="matrix(.013,0,0,-0.013,8.008,0)"><path d="M300 -147C201 -63 143 98 143 270S200 602 300 686L282 710C136 610 70 450 70 271V270C70 89 136 -72 282 -170L300 -147Z"></path></g><g transform="matrix(.013,0,0,-0.013,12.506,0)"><path d="M600 480C600 590 528 650 384 650H143L137 622C222 614 225 607 210 531L130 127C113 41 106 36 23 28L17 0H294L300 28C204 36 195 42 212 127L243 284L314 263C327 263 339 263 352 264C465 271 600 337 600 480ZM508 481C508 351 402 304 329 304C289 304 265 311 250 317L295 559C302 594 310 606 323 611C335 616 350 619 367 619C455 619 508 573 508 481Z"></path></g><g transform="matrix(.013,0,0,-0.013,20.532,0)"><path d="M275 270C275 450 212 609 64 710L45 686C145 604 203 442 203 270S147 -63 45 -147L64 -170C213 -68 275 89 275 270Z"></path></g></svg> varying with <span class="nowrap"><svg height="15.535pt" id="M184" style="vertical-align:-3.9436pt" version="1.1" viewbox="-0.0498162 -11.5914 12.4186 15.535" width="12.4186pt" xmlns="http://www.w3.org/2000/svg" xmlns:xlink="http://www.w3.org/1999/xlink"><g transform="matrix(.013,0,0,-0.013,0,0)"><path d="M548 455L523 469C505 448 490 439 461 439C416 439 374 447 316 447C144 447 23 310 23 161C23 47 89 -12 179 -12C312 -12 429 106 429 244C429 303 419 344 368 386L371 388C404 383 440 378 474 378C507 378 530 411 548 455ZM350 274C350 191 308 25 198 25C144 25 108 75 108 157C108 264 170 395 276 395C296 395 320 384 333 360C347 334 350 316 350 274Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,7.347,-5.741)"><path d="M414 144C384 79 371 75 317 75H135L276 221C367 316 408 376 408 465C408 570 327 635 237 635C179 635 131 609 100 575L42 494L67 471C94 510 138 565 205 565C277 565 321 517 321 435C321 348 258 270 195 195C146 137 88 81 33 26V0H411C423 44 433 88 446 135L414 144Z"></path></g><g transform="matrix(.0091,0,0,-0.0091,6.76,3.784)"><path d="M396 374C396 399 365 451 262 451C173 451 84 405 84 327C84 295 107 257 157 243V241C91 226 24 184 24 119C24 41 92 -12 189 -12C272 -12 344 31 386 91L367 118C325 76 274 50 222 50C163 50 120 84 120 138C120 191 169 218 223 218C247 218 263 217 278 216L312 260L308 267H259C200 267 167 297 167 338S202 414 250 414C297 414 326 387 336 341C338 331 341 328 349 328C361 328 396 349 396 374Z"></path></g></svg>.</span></div>

Complexity

fig2

Figure 2

Figure 2: Continuous-Time Insider Trading with Risk-Neutral Insider under Imperfect Observation 