Existence of linear strategy equilibrium in insider trading with partial observations

This paper investigates a linear strategy equilibrium in insider trading in continuous time allowing market makers to know some information on the value of a stock. By the use of filtering theory, the authors prove that in a monopoly market, there exists a unique equilibrium of linear strategy of intensity in a closed form, such that the insider can make positive profits and at which, all of the private information on the value of the stock is released; and the more accurate the information on the value of the stock observed by the market makers, the less the positive profits are made by the insider, and even go to zero. However, there is no Nash equilibrium in a Cournot competition market between two insiders if they both adopt a linear strategy of intensity.