Optimal Transport and Informed Trading in Securities Markets
Event details
| Date | 06.11.2026 |
| Hour | 11:00 › 12:15 |
| Speaker | Kerry Back - Rice University |
| Location |
UNIL, Extranef, room 126
|
| Category | Conferences - Seminars |
| Event Language | English |
We establish connections between optimal transport theory and the dynamic version of the Kyle (1985) model of informed trading. We use the connections to extend the model to risk-averse market makers and multiple assets with general distributions. Risk aversion generates excess volatility, excess co-movement, short-term reversals, a variance risk premium, and a non-monotone pricing kernel. We identify the separate effects of adverse selection and inventory risk on market illiquidity. We apply the model to show that option-implied volatility predicts stock returns when there is informed trading in stocks and options and market makers are risk averse.
Practical information
- Informed public
- Free