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ISE Seminar-Insider Trading with Incomplete Information

Event Type
insider trading
Industrial & Enterprise Systems Engineering
112 Transportation Building
Mar 30, 2017   4:00 pm  
René Caldentey, University of Chicago, Booth School of Business
Holly Kizer, Assistant Director of Graduate Studies
Originating Calendar
ISE Seminar Calendar


In this talk we will discuss a continuous-time model of strategic trading with asymmetric information. The formulation builds upon the insider trading model introduced by Kyle (1985) with three important differences: (a) the fundamental value of the asset has a Bernoulli distribution,  (b) this value is publicly revealed at a random (unpredictable) time and (c) the market maker is not certain that there is an insider. 

Assuming the market maker can shut down the market when the potential losses of liquidity traders are unbounded, we are able to explicitly construct a Markov equilibrium. In equilibrium, the market maker continuously update his beliefs about the value of the asset, but his beliefs about the presence of the insider remain constant.


René Caldentey is a Professor of Operations Management at the the University of Chicago Booth School of Business. His primary research interests include stochastic modeling with applications to revenue and retail management, queueing theory, and finance. He has been published in numerous journals including Advances in Applied Probability, Econometrica, Management Science, Mathematics of Operations Research, M&SOM, Operations Research and Queueing Systems. He has served on the editorial board of Management Science, M&SOM, Operations Research, Production and Operations Management and the Journal of Systems and Engineering (in Spanish).

Prior to joining Booth, Caldentey was a professor in the department of Information, Operations and Management Science at New York University Stern School of Business. Before joining NYU Stern in 2001, he worked for the Chilean Central Bank and taught at the University of Chile and The Sloan School of Management at Massachusetts Institute of Technology (MIT).

Professor Caldentey received his Master of Arts in civil industrial engineering from the University of Chile and his Doctor of Philosophy in operations management from MIT.

Authors: René Caldentey (U. Chicago) and Ennio Stacchetti (NYU)

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