Closed‐loop Nash competition for liquidity

DOI10.1111/MAFI.12409MaRDI QIDQ6187366zbMATH OpenOpenAlexFDO

Authors Johannes Muhle-Karbe, Eyal Neuman

Publication date 31 January 2024

Published in Mathematical Finance (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/2112.02961

zbMATH Keywords

price impactstochastic gamesclosed-loop Nash equilibrium

Mathematics Subject Classification ID

Applications of game theory (91A80) Financial markets (91G15) Stochastic games, stochastic differential games (91A15)

Abstract: We study a multi-player stochastic differential game, where agents interact through their joint price impact on an asset that they trade to exploit a common trading signal. In this context, we prove that a closed-loop Nash equilibrium exists if the price impact parameter is small enough. Compared to the corresponding open-loop Nash equilibrium, both the agents' optimal trading rates and their performance move towards the central-planner solution, in that excessive trading due to lack of coordination is reduced. However, the size of this effect is modest for plausible parameter values.

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Cites work

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Cited in

(3)

• Optimal trading and competition with information in the price impact model
• Trading with the crowd
• Nash equilibria for relative investors with (non)linear price impact

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