LA Probability Forum

USC, Kaprelian (KAP) 414

We study a general class of finite-player stochastic games with mean-field interaction where the linear-quadratic cost functional includes linear operators acting on controls in L^2. We propose a new approach for deriving the Nash equilibrium of these games in terms of operator resolvents, by reducing the associated first order conditions to a system of stochastic Fredholm equations which can be solved. Moreover, by deriving stability results for the system of Fredholm equations, we obtain the convergence of the finite-player Nash equilibrium to the mean-field equilibrium in the infinite player limit. Our general framework includes examples of stochastic Volterra linear-quadratic games, models of systemic risk and advertising with delay, and optimal liquidation games with transient price impact. 

This is joint work with Eduardo Abi Jaber (Ecole Polytechnique) and Eyal Neuman (Imperial College London). The paper is available at https://ssrn.com/abstract=4470883.