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Sequential Fair Stackelberg Equilibria of Linear Strategies in Risk-Seeking Insider Trading

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Abstract

This paper develops a sequential fair Stackelberg auction model in which each of the two risk-seeking insiders has an equal chance to be a leader or follower at each auction stage. The authors establish the existence, uniqueness of sequential fair Stackelberg equilibria (in short, FSE) when both insiders adopt linear strategies, and find that at the sequential equilibria such two insiders compete aggressively that cause the liquidity of market to drop, the information to be revealed and the profit to go down very rapidly while the trading intensity goes substantially high. Furthermore, the authors also give continuous versions of corresponding parameters in the sequential FSE in closed forms, as the time interval between auctions approaches to zero. It shows that such parameters go down or up approximately exponentially and all of the liquidity of market, information and profit become zero while the trading intensity goes to infinity. Some numerical simulations about the sequential FSE are also illustrated.

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Authors and Affiliations

  1. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100190, China

    Fuzhou Gong

  2. Guizhou Normal University, Guizhou, 550001, China

    Yonghui Zhou

Authors
  1. Fuzhou Gong
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  2. Yonghui Zhou
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Corresponding author

Correspondence to Yonghui Zhou.

Additional information

The first author is supported by the National Natural Science Foundation of China under Grant No. 10721101 and China’s National 973 Project (2006CB805900). The second author is supported by the National Natural Science Foundation of China under Grant Nos. 11161011 and 11365005, Guizhou EDKY[2016]027, Guizhou QKZYD[2016]4006 and Guizhou ZDXK[2016]8.

This paper was recommended for publication by Editor WANG Shouyang.

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Gong, F., Zhou, Y. Sequential Fair Stackelberg Equilibria of Linear Strategies in Risk-Seeking Insider Trading. J Syst Sci Complex 31, 1302–1328 (2018). https://doi.org/10.1007/s11424-018-6266-1

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  • DOI: https://doi.org/10.1007/s11424-018-6266-1

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