Repeated games with asymmetric information and random price fluctuations at finance markets: the case of countable state space

Victor C. Domansky () and Victoria L. Kreps ()
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Victor C. Domansky: St. Petersburg Institute for Economics and Mathematics - Russian Academy of Sciences
Victoria L. Kreps: St. Petersburg Institute for Economics and Mathematics - Russian Academy of Sciences

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: This paper is concerned with multistage bidding models introduced by De Meyer and Moussa Saley (2002) to analyze the evolution of the price system at finance markets with asymmetric information. The zero-sum repeated games with incomplete information are considered modeling the bidding with countable sets of possible prices and admissible bids. It is shown that, if the liquidation price of a share has a finite variance, then the sequence of values of n-step games is bounded and converges to the value of the game with infinite number of steps. We construct explicitly the optimal strategies for this game. The optimal strategy of Player 1 (the insider) generates a symmetric random walk of posterior mathematical expectations of liquidation price with absorption. The expected duration of this random walk is equal to the initial variance of liquidation price. The guaranteed total gain of Player 1 (the value of the game) is equal to this expected duration multiplied with the fixed gain per step

Keywords: Multistage bidding; asymmetric information; repeated games; optimal strategy (search for similar items in EconPapers)
JEL-codes: C73 D44 D82 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2009-01, Revised 2009-05
New Economics Papers: this item is included in nep-cta and nep-gth
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:09040

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