Multidimensional Kyle-Back model with a risk averse informed trader

TL;DR

This paper extends the Kyle-Back model to multiple assets with non-Gaussian prices, demonstrating the existence of equilibrium using advanced mathematical tools like Fokker-Planck equations and optimal transport constraints.

Contribution

It introduces a multidimensional Kyle-Back framework incorporating risk aversion and non-Gaussian prices, establishing equilibrium existence through novel PDE and optimal transport methods.

Findings

Equilibrium exists in a multi-asset, non-Gaussian Kyle-Back model.

The model accounts for risk aversion in informed traders.

Mathematical techniques include Fokker-Planck equations and optimal transport constraints.

Abstract

We study the continuous time Kyle-Back model with a risk averse informed trader.We show that in a market with multiple assets and non-Gaussian prices an equilibrium exists. The equilibrium is constructed by considering a Fokker-Planck equation and a system of partial differential equations that are coupled with an optimal transport type constraint at maturity.