Mean-Field Liquidation Games with Market Drop-out

Guanxing Fu, Paul P. Hager and Ulrich Horst

Papers from arXiv.org

Abstract: We consider a novel class of portfolio liquidation games with market drop-out ("absorption"). More precisely, we consider mean-field and finite player liquidation games where a player drops out of the market when her position hits zero. In particular round-trips are not admissible. This can be viewed as a no statistical arbitrage condition. In a model with only sellers we prove that the absorption condition is equivalent to a short selling constraint. We prove that equilibria (both in the mean-field and the finite player game) are given as solutions to a non-linear higher-order integral equation with endogenous terminal condition. We prove the existence of a unique solution to the integral equation from which we obtain the existence of a unique equilibrium in the MFG and the existence of a unique equilibrium in the $N$-player game. We establish the convergence of the equilibria in the finite player games to the obtained mean-field equilibrium and illustrate the impact of the drop-out constraint on equilibrium trading rates.

Date: 2023-03, Revised 2023-09
New Economics Papers: this item is included in nep-des and nep-gth
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Citations: View citations in EconPapers (2)

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