A bidding game with heterogeneous players (Q481066)

The authors model a one-sided limit order book as a noncooperative game for several players having different payoff functions and offering various quantities of an asset at different prices competing to fulfill an incoming order, whose size is not known a priori. In a previous paper, the existence of a Nash equilibrium was established by means of a fixed point argument and in this paper, the main issue discussed is whether this equilibrium can be obtained from the unique solution to a two-point boundary value problem for a suitable system of discontinuous ordinary differential equations. The authors give a positive answer in two cases: when there are exactly two players or when all players assign the same exponential probability distribution to the incoming order. In both cases, the Nash equilibrium is unique and the authors show by a counterexample that these assumptions, in general, cannot be removed.