Mean Field Games with Partial Information for Algorithmic Trading
From MaRDI portal
Abstract: Financial markets are often driven by latent factors which traders cannot observe. Here, we address an algorithmic trading problem with collections of heterogeneous agents who aim to perform optimal execution or statistical arbitrage, where all agents filter the latent states of the world, and their trading actions have permanent and temporary price impact. This leads to a large stochastic game with heterogeneous agents. We solve the stochastic game by investigating its mean-field game (MFG) limit, with sub-populations of heterogeneous agents, and, using a convex analysis approach, we show that the solution is characterized by a vector-valued forward-backward stochastic differential equation (FBSDE). We demonstrate that the FBSDE admits a unique solution, obtain it in closed-form, and characterize the optimal behaviour of the agents in the MFG equilibrium. Moreover, we prove the MFG equilibrium provides an -Nash equilibrium for the finite player game. We conclude by illustrating the behaviour of agents using the optimal MFG strategy through simulated examples.
This page was built for publication: Mean Field Games with Partial Information for Algorithmic Trading
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6298916)
