Consistent Conjectural Variations Equilibrium for a Financial Model

Nancy Solis-García (), José Guadalupe Flores-Muñiz (), Vladik Kreinovich (), Nataliya Kalashnykova () and Viacheslav Kalashnikov ()
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Nancy Solis-García: Universidad Autónoma de Nuevo León (UANL)
José Guadalupe Flores-Muñiz: Universidad Autónoma de Nuevo León (UANL)
Vladik Kreinovich: University of Texas at El Paso (UTEP)
Nataliya Kalashnykova: Universidad Autónoma de Nuevo León (UANL)
Viacheslav Kalashnikov: Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM)

Journal of Optimization Theory and Applications, 2022, vol. 194, issue 3, No 9, 966-987

Abstract: Abstract We consider a general model of financial flows and prices with multiple sectors and instruments. Each sector optimizes the composition of assets and liabilities in its portfolio, whose utility is given by a quadratic function constrained to satisfy the accounting identity that appears in flow-of-funds accounts and the equilibrium conditions that guarantee market clearance. To define the financial equilibrium, we make use of the concept of conjectural variations, in which each sector conjectures the possible dependence of the instruments’ prices upon its portfolio structure. The problem is modeled as a continuous two-stage game. In the first stage, the set of strategies for each sector consists of its possible conjectures about its influence on the prices. The second stage is the financial model’s equilibrium problem where, according to the conjectures selected in the first stage, each sector decides its portfolio composition. Each sector aims to minimize the risks, while at the same time maximizing the value of its assets and minimizing the value of its liabilities.

Keywords: Game theory; Financial equilibrium; Conjectural variation; Meta-game; 90C20; 91A10; 91B52; 91G80 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10957-022-02060-9

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