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Paper / 2023SMQ / 78083581900019
Is Kyle's equilibrium model stable?
Kasper Larsen / Umut Cetin
market microstructure / mathematical financeResource overview

Is Kyle's equilibrium model stable?

Paper2023

by Kasper Larsen, Umut Cetin

Tags
market microstructuremathematical finance

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Suggested foundations for options and derivatives pricing and market microstructure and execution. Specialist prerequisites vary by paper.

Before you read

  1. The Binomial Model

    Build replication and risk-neutral probabilities in a tractable model.

  2. Market Model and Risk-Neutral Valuation

    Distinguish pricing probabilities from physical forecasts.

  3. Order Books

    Read bid, ask, depth and queue-based market state.

  4. Order Flow and Adverse Selection

    Understand why fills and order flow can carry information.

Go further

  1. The Black-Scholes PDE, Formula and Implied Volatility

    Connect the pricing equation, closed-form value and implied volatility.

  2. Market Impact

    Connect trading speed and size to execution cost.

  3. Implementation Shortfall

    Measure execution relative to the decision price.

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