An FBSDE approach to market impact games with stochastic parameters
Trading and Market Microstructure
2020-01-06 v1
Abstract
We analyze a market impact game between risk averse agents who compete for liquidity in a market impact model with permanent price impact and additional slippage. Most market parameters, including volatility and drift, are allowed to vary stochastically. Our first main result characterizes the Nash equilibrium in terms of a fully coupled system of forward-backward stochastic differential equations (FBSDEs). Our second main result provides conditions under which this system of FBSDEs has indeed a unique solution, which in turn yields the unique Nash equilibrium. We furthermore obtain closed-form solutions in special situations and analyze them numerically
Keywords
Cite
@article{arxiv.2001.00622,
title = {An FBSDE approach to market impact games with stochastic parameters},
author = {Samuel Drapeau and Peng Luo and Alexander Schied and Dewen Xiong},
journal= {arXiv preprint arXiv:2001.00622},
year = {2020}
}