Abstract.
This paper is concerned with the strategic 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 ∞, 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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Received: February 2002
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Meyer, B., Saley, H. On the strategic origin of Brownian motion in finance. Game Theory 31, 285–319 (2003). https://doi.org/10.1007/s001820200120
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DOI: https://doi.org/10.1007/s001820200120