TITLE:
Endogenous Explanation for Random Fluctuation of Stock Price and Its Application: Based on the View of Repeated Game with Asymmetric Information
AUTHORS:
Weicheng Xu, Tian Zhou, Di Peng
KEYWORDS:
Repeated Game, Option Pricing, Martingale, Asymmetric Information
JOURNAL NAME:
Journal of Applied Mathematics and Physics,
Vol.9 No.4,
April
21,
2021
ABSTRACT: In this paper, we characterize the players’ behavior in the stock market by the repeated game model with asymmetric information. We show that the discount price process of stock is a martingale driven by Brownian motion, and give an endogenous explanation for the random fluctuation of stock price: the randomizations in the market is due to the randomizations in the strategy of the informed player which hopes to avoid revealing his private information. On this basis, through studying the corresponding option pricing problem furtherly, we can give the expression of function φ.