The Potential Method For Price-Formation Models

MaRDI QIDQ6395609zbMATH OpenFDO

Authors Yuri Ashrafyan, Tigran K. Bakaryan, D. Gomes, Julian Gutiérrez

Publication date 4 April 2022

Mathematics Subject Classification ID

PDEs in connection with mean field game theory (35Q89) Numerical solutions to stochastic differential and integral equations (65C30)

Abstract: We consider the mean-field game price formation model introduced by Gomes and Sa'ude. In this MFG model, agents trade a commodity whose supply can be deterministic or stochastic. Agents maximize profit, taking into account current and future prices. The balance between supply and demand determines the price. We introduce a potential function that converts the MFG into a convex variational problem. This variational formulation is particularly suitable for machine learning approaches. Here, we use a recurrent neural network to solve this problem. In the last section of the paper, we compare our results with known analytical solutions.

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