Price dynamics on a stock market with asymmetric information
AbstractWhen two asymmetrically informed risk-neutral agents repeatedly exchange a risky asset for numéraire, they are essentially playing an n-times repeated zero-sum game of incomplete information. In this setting, the price Lq at period q can be defined as the expected liquidation value of the risky asset given players' past moves. This paper indicates that the asymptotics of this price process at equilibrium, as n goes to [infinity], is completely independent of the "natural" trading mechanism used at each round: it converges, as n increases, to a Continuous Martingale of Maximal Variation. This martingale class thus provides natural dynamics that could be used in financial econometrics. It contains in particular Black and Scholes' dynamics. We also prove here a mathematical theorem on the asymptotics of martingales of maximal M-variation, extending Mertens and Zamir's paper on the maximal L1-variation of a bounded martingale.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 69 (2010)
Issue (Month): 1 (May)
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Web page: http://www.elsevier.com/locate/inca/622836
Repeated games Incomplete information Price dynamics Martingales of maximal variation;
Other versions of this item:
- Bernard De Meyer, 2007. "Price Dynamics on a Stock Market with Asymmetric Information," Cowles Foundation Discussion Papers 1604, Cowles Foundation for Research in Economics, Yale University.
- Bernard De Meyer, 2007. "Price Dynamics on a Stock Market with Asymmetric Information," Levine's Bibliography 321307000000000841, UCLA Department of Economics.
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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