Merrill Lynch, Pierce, Fenner & Smith, the nation's biggest stock broker, has fired two of its top executives who allegedly used the firm's buying power to inflate the value of securities Merrill Lynch already owned.

The two executives, J. Barris Lepley Jr., head of the company's arbitrage department, and Warren M. Choset, the department's chief trader, were "terminated" Jan. 15 for "a violation of corporate policy," a Merrill Lynch spokesman said.

On Christmas Eve, the day Merrill Lynch closed its 1981 books, the executives allegedly bought large amounts of options--securities that give owners the right to buy or sell a stock at a particular price--in an attempt to boost the value of similar options that Merrill Lynch's arbitrage department already owned.

Arbitragers are paid on the basis of the profits they make for the company.

One Wall Street source noted that even though the value of the options bought on Dec. 24 declined the next trading day, persons used to taking big risks would feel they could easily make it up.

Otto Obermaier, the attorney for Lepley and Choset, said he has not had access yet to the order tickets or talked to officials at the stock exchanges involved. He said he would not permit his clients to be interviewed but expects that when everything has died down they "will continue to be" respected members of the financial community.

Arbitrage departments at brokerage firms make their profits by guessing which way stock or option prices will go. During corporate takeover attempts, for example, the acquiring company usually offers to pay sharply more for the target company than its current market price. An arbitrager buys the stock from an investor and takes the risk that the merger will go through. If it does, the trader stands to make a big profit; if it does not, he takes a loss.

The heavy volume of orders by Merrill Lynch to both the Chicago Board Options Exchange and the American Stock Exchange prompted those exchanges to investigate. Merrill Lynch conducted its own evaluation and reportedly has turned over the results to the Securities and Exchange Commission.

Lepley and Choset are highly paid. Sources said that in recent years Lepley has earned $1.5 million or so while Choset has taken home more than $700,000.