Question: Consider a Kyle ( 1 9 8 5 ) model where the true value of the stock is $ 3 0 , the unconditional variance
Consider a Kyle model where the true value of the stock is $ the unconditional variance of the true value is the variance of uninformed trading is and the unconditional expected value of the stock is $ ie E
Please use this information to answer the following five questions.
The informed traders optimal demand based on the model is:
The price impact is:
The informed trader's exante profit is:
If noise trading u then price p is:
Market maker's realized profit is and informed trader's realized profit is
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