Repeated market games with lack of information on both sides

Bernard De Meyer and Alexandre Marino ()
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Alexandre Marino: CERMSEM

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

Abstract: De Meyer and Moussa Saley explains endogenously the appearance of Brownian Motion in finance by modelling the strategic interaction between two asymmetrically informed market makers with a zero-sum repeated game with One-sided information. In this paper, we generalize this model to a setting of a bilateral asymmetry of information. This new model leads us to the analyze of a repeated zero sum game with lack of information on both sides. In De Meyer and Moussa Saley's analysis, the appearance of the normal distribution in the asymptotic behaviour of Vn(P)/Vn is the crucial point of the appearance of the B.M. In the context of bilateral asymmetry of information, the same analysis provides naturally the B.M as a limit of random walks. This allows us to describe the limit of Vn(P,Q)/Vn as the value of a associated «Brownian game», similar to those introduced by De Meyer. Furthermore, the value of this «Brownian game» allows us to consider the limit of Vn(P,Q)Vn as the solution of a heuristic partial differential equation

Keywords: Insider trading; game with incomplete information; Brownian motion (search for similar items in EconPapers)
Pages: pages
Date: 2004-05
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:mse:wpsorb:bla04066

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