Mean Field Game of Optimal Relative Investment with Jump Risk

DOI10.1007/S11425-021-2109-3MaRDI QIDQ6374309zbMATH OpenFDO

Authors Lijun Bo, Shihua Wang, Xiang Yu

Publication date 2 August 2021

Full work available at URL https://doi.org/10.1007/S11425-021-2109-3

Mathematics Subject Classification ID

Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Mean field games (aspects of game theory) (91A16) Applications of game theory (91A80) Financial applications of other theories (91G80)

Abstract: This paper studies the n-player game and the mean field game under the CRRA relative performance on terminal wealth, in which the interaction occurs by peer competition. In the model with n agents, the price dynamics of underlying risky assets depend on a common noise and contagious jump risk modelled by a multi-dimensional nonlinear Hawkes process. With a continuum of agents, we formulate the MFG problem and characterize a deterministic mean field equilibrium in an analytical form under some conditions, allowing us to investigate some impacts of model parameters in the limiting model and discuss some financial implications. Moreover, based on the mean field equilibrium, we construct an approximate Nash equilibrium for the n-player game when n is sufficiently large. The explicit order of the approximation error is also derived.

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