Continuous versus Discrete Market Games

Alexandre Marino () and Bernard de Meyer ()
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Alexandre Marino: CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Bernard de Meyer: CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: De Meyer and Moussa Saley [4] provide an endogenous justification for the appearance of Brownian Motion in Finance by modeling the strategic interaction between two asymmetrically informed market makers with a zero-sum repeated game with one-sided information. The crucial point of this justification is the appearance of the normal distribution in the asymptotic behavior of Vn(P) pn . In De Meyer and Moussa Saley's model [4], agents can fix a price in a continuous space. In the real world however, the market compels the agents to post prices in a discrete set. The previous remark raises the following question: Does the normal density still appear in the asymptotic of Vn pn for the discrete market game? The main topic of this paper is to prove that for all discretization of the price set, Vn(P) pn converges uniformly to 0. Despite of this fact, we do not reject De Meyer, Moussa analysis: when the size of the discretization step is small as compared to n−12 , the continuous market game is a good approximation of the discrete one.

Keywords: Insider trading; game of incomplete information; Brownian Motion (search for similar items in EconPapers)
Date: 2005-11-12
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Published in 2005

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00272887

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