Forward utility and market adjustments in relative investment-consumption games of many players
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Abstract: We study a portfolio management problem featuring many-player and mean field competition, investment and consumption, and relative performance concerns under the forward performance processes (FPP) framework. We focus on agents using power (CRRA) type FPPs for their investment-consumption optimization problem under a common noise Merton market model. We solve both the many-player and mean field game providing closed-form expressions for the solutions where the limit of the former yields the latter. In our case, the FPP framework yields a continuum of solutions for the consumption component as indexed to a market parameter we coin "market-risk relative consumption preference". The parameter permits the agent to set a preference for their consumption going forward in time that, in the competition case, reflects a common market behaviour. We show the FPP framework, under both competition and no-competition, allows the agent to disentangle her risk-tolerance and elasticity of intertemporal substitution (EIS) just like Epstein-Zin preferences under recursive utility framework and unlike the classical utility theory one. This, in turn, allows a finer analysis on the agent's consumption "income" and "substitution" regimes, and, of independent interest, motivates a new strand of economics research on EIS under the FPP framework. We find that competition rescales the agent's perception of consumption in a non-trivial manner. We provide numerical illustrations of our results.
Recommendations
- Many-player games of optimal consumption and investment under relative performance criteria
- Mean field and n-agent games for optimal investment under relative performance criteria
- Mean field portfolio games
- Mean field portfolio games with consumption
- Competition in fund management and forward relative performance criteria
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- scientific article; zbMATH DE number 4010171 (Why is no real title available?)
- Many-player games of optimal consumption and investment under relative performance criteria
- Mean field and n-agent games for optimal investment under relative performance criteria
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Cited in
(18)- Lose oneself in comparison: an investment and consumption game between two agents
- Mean field portfolio games
- Many-player games of optimal consumption and investment under relative performance criteria
- Mean field portfolio games with consumption
- Competition in fund management and forward relative performance criteria
- Itô-Wentzell-Lions formula for measure dependent random fields under full and conditional measure flows
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- Optimal investment in defined contribution pension schemes with forward utility preferences
- Time-consistent pension policy with minimum guarantee and sustainability constraint
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- Nash equilibria for relative investors with (non)linear price impact
- Mean field games with unbounded controlled common noise in portfolio management with relative performance criteria
- A mean field game approach to equilibrium consumption under external habit formation
- A mean field game approach to relative investment-consumption games with habit formation
- Many-insurer robust games of reinsurance and investment under model uncertainty in incomplete markets
- A deep learning method for optimal investment under relative performance criteria among heterogeneous agents
- Optimal investment strategies under the relative performance in jump-diffusion markets
- Multiagent relative investment games in a jump diffusion market with deep reinforcement learning algorithm
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