Mean field games with absorption and common noise with a model of bank run

DOI10.1016/J.SPA.2023.07.007MaRDI QIDQ6072906zbMATH OpenOpenAlexFDO

Authors Matteo Burzoni, Luciano Campi

Publication date 15 September 2023

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2107.00603

zbMATH Keywords

bank runsmean field gamesNash equilibriacommon noiseabsorbing boundary

Mathematics Subject Classification ID

Applications of game theory (91A80) Applications of stochastic analysis (to PDEs, etc.) (60H30) Actuarial science and mathematical finance (91G99) Mean field games and control (49N80) Mean field games (aspects of game theory) (91A16)

Abstract: We consider a mean field game describing the limit of a stochastic differential game of $N$-players whose state dynamics are subject to idiosyncratic and common noise and that can be absorbed when they hit a prescribed region of the state space. We provide a general result for the existence of weak mean field equilibria which, due to the absorption and the common noise, are given by random flow of sub-probabilities. We first use a fixed point argument to find solutions to the mean field problem in a reduced setting resulting from a discretization procedure and then we prove convergence of such equilibria to the desired solution. We exploit these ideas also to construct $varepsilon$-Nash equilibria for the $N$-player game. Since the approximation is two-fold, one given by the mean field limit and one given by the discretization, some suitable convergence results are needed. We also introduce and discuss a novel model of bank run that can be studied within this framework.

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