On the strategic origin of Brownian motion in finance
AbstractThis 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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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2000057.
Date of creation: 00 Dec 2000
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- Hadiza Moussa Saley & Bernard De Meyer, 2003. "On the strategic origin of Brownian motion in finance," International Journal of Game Theory, Springer, vol. 31(2), pages 285-319.
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- Bernard De Meyer, 2007.
"Price Dynamics on a Stock Market with Asymmetric Information,"
321307000000000841, UCLA Department of Economics.
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- 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.
- Domansky, V. & Kreps, V., 2011. "Game Theoretic Bidding Model: Strategic Aspects of Price Formation at Stock Markets," Journal of the New Economic Association, New Economic Association, issue 11, pages 39-62.
- 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.
- Giraud, Gael, 2003. "Strategic market games: an introduction," Journal of Mathematical Economics, Elsevier, vol. 39(5-6), pages 355-375, July.
- Alexandre Marino & Bernard De Meyer, 2005. "Continuous versus Discrete Market Games," Cowles Foundation Discussion Papers 1535, Cowles Foundation for Research in Economics, Yale University.
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