Many-player games of optimal consumption and investment under relative performance criteria
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Publication:2175463
DOI10.1007/S11579-019-00255-9zbMATH Open1437.91057arXiv1905.11782OpenAlexW2996934105WikidataQ126413010 ScholiaQ126413010MaRDI QIDQ2175463FDOQ2175463
Publication date: 29 April 2020
Published in: Mathematics and Financial Economics (Search for Journal in Brave)
Abstract: We study a portfolio optimization problem for competitive agents with CRRA utilities and a common finite time horizon. The utility of an agent depends not only on her absolute wealth and consumption but also on her relative wealth and consumption when compared to the averages among the other agents. We derive a closed form solution for the -player game and the corresponding mean field game. This solution is unique in the class of equilibria with constant investment and continuous time-dependent consumption, both independent of the wealth of the agent. Compared to the classical Merton problem with one agent, the competitive model exhibits a wide range of highly nonlinear and non-monotone dependence on the agents' risk tolerance and competitiveness parameters. Counter-intuitively, competitive agents with high risk tolerance may behave like non-competitive agents with low risk tolerance.
Full work available at URL: https://arxiv.org/abs/1905.11782
Applications of game theory (91A80) Portfolio theory (91G10) (n)-person games, (n>2) (91A06) Mean field games (aspects of game theory) (91A16)
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