Closed-loop nash competition for liquidity
File(s)
Published version
Author(s)
Micheli, Alessandro
Muhle-Karbe, Johannes
Neumann, Eyal
Type
Journal Article
Abstract
We study a multiplayer stochastic differential game, where agents interact through their joint price impact on an asset that they trade to exploit a common trading signal. In this context, we prove that a closed-loop Nash equilibrium exists if the price impact parameter is small enough. Compared to the corresponding open-loop Nash equilibrium, both the agents' optimal trading rates and their performance move towards the central-planner solution, in that excessive trading due to lack of coordination is reduced. However, the size of this effect is modest for plausible parameter values.
Date Issued
2023-10
Date Acceptance
2023-06-19
Citation
Mathematical Finance, 2023, 33 (4), pp.1082-1118
ISSN
0960-1627
Publisher
Wiley
Start Page
1082
End Page
1118
Journal / Book Title
Mathematical Finance
Volume
33
Issue
4
Copyright Statement
© 2023 The Authors. Mathematical Finance published by Wiley Periodicals LLC.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
License URL
Identifier
https://onlinelibrary.wiley.com/doi/10.1111/mafi.12409
Publication Status
Published
Date Publish Online
2023-07-10