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A mean field game price model with noise

1 CEMSE Division, King Abdullah University of Science and Technology (KAUST), Thuwal, Saudi Arabia
2 Departamento Acadêmico de Matemática, Universidade Tecnológica Federal do Paraná (UTFPR), Londrina, PR, Brazil

This contribution is part of the Special Issue: Critical values in nonlinear pdes – Special Issue dedicated to Italo Capuzzo Dolcetta
Guest Editor: Fabiana Leoni
Link: www.aimspress.com/mine/article/5754/special-articles

Special Issues: Critical values in nonlinear pdes - Special Issue dedicated to Italo Capuzzo Dolcetta

In this paper, we propose a mean-field game model for the price formation of a commodity whose production is subjected to random fluctuations. The model generalizes existing deterministic price formation models. Agents seek to minimize their average cost by choosing their trading rates with a price that is characterized by a balance between supply and demand. The supply and the price processes are assumed to follow stochastic differential equations. Here, we show that, for linear dynamics and quadratic costs, the optimal trading rates are determined in feedback form. Hence, the price arises as the solution to a stochastic differential equation, whose coefficients depend on the solution of a system of ordinary differential equations.
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Keywords mean field games; price formation; common noise; linear quadratic model; constrained mean-field games; equilibrium pricing

Citation: Diogo Gomes, Julian Gutierrez, Ricardo Ribeiro. A mean field game price model with noise. Mathematics in Engineering, 2021, 3(4): 1-14. doi: 10.3934/mine.2021028


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