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On the strategic origin of Brownian motion in finance

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Author Info
DE MEYER, Bernard
MOUSSA SALEY, Hadiza

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Abstract

This paper is concerned with the stategic use of a private information on the stock market. A repeated auction model is used to analyze the evolution of the price system on a market with asymmetric information. The model turns out to be a zero-sum repeated game with one-sided information, as introduced by Aumann and Maschler. The stochastic evolution of the price system can be explicitly computed in the n times repeated case. As n grows to [infinite] , this process tends to a continuous time martingale related to a Brownian Motion. This paper provides in this way an endogenous justification for the appearance of Brownian Motion in Finance theory.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000057.

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Date of creation: 01 Dec 2000
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Handle: RePEc:cor:louvco:2000057

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  1. MERTENSÊ, Jean-Franois & ZAMIRÊ, Shmuel, 1995. "Incomplete Information Games and the Normal Distribution," CORE Discussion Papers 1995020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Calcagno, Riccardo & Lovo, Stefano M., 1998. "Bid-Ask Price Competition with Asymmetric Information between Market Makers," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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  3. CALCAGNO, Riccardo & LOVO, Stefano M., 1998. "Bid-ask price competition with asymmetric information between market makers.," CORE Discussion Papers 1998016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  1. Bernard De Meyer, 2007. "Price Dynamics on a Stock Market with Asymmetric Information," Levine's Bibliography 321307000000000841, UCLA Department of Economics. [Downloadable!]
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  2. Johannes Horner & Julian Jamison, 2006. "Private Information in Sequential Common-Value Auctions," Discussion Papers 1422, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  3. Alexandre Marino & Bernard De Meyer, 2005. "Continuous versus Discrete Market Games," Cowles Foundation Discussion Papers 1535, Cowles Foundation, Yale University. [Downloadable!]
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