Closed-Loop Nash Competition for Liquidity

Alessandro Micheli, Johannes Muhle-Karbe and Eyal Neuman

Papers from arXiv.org

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.

Date: 2021-12, Revised 2023-06
New Economics Papers: this item is included in nep-cwa and nep-gth
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Citations: View citations in EconPapers (5)

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