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

DOI10.1016/J.SPA.2023.07.007zbMATH Open1528.91008arXiv2107.00603OpenAlexW3177286391MaRDI QIDQ6072906FDOQ6072906

Authors: Matteo Burzoni, Luciano Campi 

Publication date: 15 September 2023

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

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.

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

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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)

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• Optimal bubble riding with price-dependent entry: a mean field game of controls with common noise
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