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Price dynamics on a risk averse market with asymmetric information

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Abstract

A market with asymmetric information can be viewed as a repeated exchange game between an informed sector and an uniformed sector. The case where all agents in the market are risk neutral was analyzed in De Meyer [2010]. The main result of that paper was that the price process in this risk neutral environment should be a particular kind o Brownian martingale called CMMV. This type of dynamics is due to the strategic use of their private information by the informed agents. In this paper, we generalize this analysis to the case of a risk averse market. Our main result is that the price process is still a CMMV under a martingale equivalent measure

Suggested Citation

  • Bernard De Meyer & Gaëtan Fournier, 2015. "Price dynamics on a risk averse market with asymmetric information," Documents de travail du Centre d'Economie de la Sorbonne 15054, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:15054
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    References listed on IDEAS

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    1. De Meyer , B., 1995. "From Repeated Games to Brownian Games," LIDAM Discussion Papers CORE 1995039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. De Meyer, Bernard, 2010. "Price dynamics on a stock market with asymmetric information," Games and Economic Behavior, Elsevier, vol. 69(1), pages 42-71, May.
    3. Bernard de Meyer, 2010. "Price dynamics on a stock market with asymmetric information," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00625669, HAL.
    4. Bernard de Meyer, 2010. "Price dynamics on a stock market with asymmetric information," Post-Print hal-00625669, HAL.
    5. Harrison, J. Michael & Pliska, Stanley R., 1981. "Martingales and stochastic integrals in the theory of continuous trading," Stochastic Processes and their Applications, Elsevier, vol. 11(3), pages 215-260, August.
    6. Bernard de Meyer & Hadiza Moussa Saley, 2003. "On the strategic origin of Brownian motion in Finance," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00259737, HAL.
    7. Hadiza Moussa Saley & Bernard De Meyer, 2003. "On the strategic origin of Brownian motion in finance," International Journal of Game Theory, Springer;Game Theory Society, vol. 31(2), pages 285-319.
    8. Bernard de Meyer & Hadiza Moussa Saley, 2003. "On the strategic origin of Brownian motion in Finance," Post-Print hal-00259737, HAL.
    9. Bernard de Meyer, 1999. "From repeated games to Brownian games," Post-Print hal-00259723, HAL.
    10. Bernard de Meyer, 1999. "From repeated games to Brownian games," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00259723, HAL.
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    Cited by:

    1. Fedor Sandomirskiy, 2018. "On Repeated Zero-Sum Games with Incomplete Information and Asymptotically Bounded Values," Dynamic Games and Applications, Springer, vol. 8(1), pages 180-198, March.
    2. Bernard de Meyer & Moussa Dabo, 2019. "The CMMV Pricing Model in Practice," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-02383135, HAL.
    3. Bernard de Meyer & Moussa Dabo, 2019. "The CMMV Pricing Model in Practice," Post-Print halshs-02383135, HAL.

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    More about this item

    Keywords

    Asymmetric information; Price dynamics; Martingales of maximal variation; Repeated games; Martingale equivalent measure; Risk aversion;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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