On the strategic origin of Brownian motion in finance

Hadiza Moussa Saley () and Bernard De Meyer
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Hadiza Moussa Saley: Institut Elie Cartan, Université Nancy 1 , B.P. 239, 54506 Vandoeuvre les Nancy Cedex.

International Journal of Game Theory, 2003, vol. 31, issue 2, 285-319

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 \infty, 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.

Keywords: Insider; trading; ·; game; of; incomplete; information; ·; Brownian; Motion (search for similar items in EconPapers)
Date: 2003-01-22
Note: Received: February 2002
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Citations: View citations in EconPapers (20)

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Working Paper: On the strategic origin of Brownian motion in finance (2000)
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