Stochastic Switching Games
| Title: | Stochastic Switching Games |
|---|---|
| Authors: | Li, Liangchen, Ludkovski, Michael |
| Publication Year: | 2018 |
| Collection: | Quantitative Finance |
| Subject Terms: | Economics - General Economics, 91A15, 91B52, 93E20, 62L15 |
| More Details: | We study nonzero-sum stochastic switching games. Two players compete for market dominance through controlling (via timing options) the discrete-state market regime $M$. Switching decisions are driven by a continuous stochastic factor $X$ that modulates instantaneous revenue rates and switching costs. This generates a competitive feedback between the short-term fluctuations due to $X$ and the medium-term advantages based on $M$. We construct threshold-type Feedback Nash Equilibria which characterize stationary strategies describing long-run dynamic equilibrium market organization. Two sequential approximation schemes link the switching equilibrium to (i) constrained optimal switching, (ii) multi-stage timing games. We provide illustrations using an Ornstein-Uhlenbeck $X$ that leads to a recurrent equilibrium $M^\ast$ and a Geometric Brownian Motion $X$ that makes $M^\ast$ eventually "absorbed" as one player eventually gains permanent advantage. Explicit computations and comparative statics regarding the emergent macroscopic market equilibrium are also provided. |
| Document Type: | Working Paper |
| Access URL: | http://arxiv.org/abs/1807.03893 |
| Accession Number: | edsarx.1807.03893 |
| Database: | arXiv |
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| Items | – Name: Title Label: Title Group: Ti Data: Stochastic Switching Games – Name: Author Label: Authors Group: Au Data: <searchLink fieldCode="AR" term="%22Li%2C+Liangchen%22">Li, Liangchen</searchLink><br /><searchLink fieldCode="AR" term="%22Ludkovski%2C+Michael%22">Ludkovski, Michael</searchLink> – Name: DatePubCY Label: Publication Year Group: Date Data: 2018 – Name: Subset Label: Collection Group: HoldingsInfo Data: Quantitative Finance – Name: Subject Label: Subject Terms Group: Su Data: <searchLink fieldCode="DE" term="%22Economics+-+General+Economics%22">Economics - General Economics</searchLink><br /><searchLink fieldCode="DE" term="%2291A15%2C+91B52%2C+93E20%2C+62L15%22">91A15, 91B52, 93E20, 62L15</searchLink> – Name: Abstract Label: Description Group: Ab Data: We study nonzero-sum stochastic switching games. Two players compete for market dominance through controlling (via timing options) the discrete-state market regime $M$. Switching decisions are driven by a continuous stochastic factor $X$ that modulates instantaneous revenue rates and switching costs. This generates a competitive feedback between the short-term fluctuations due to $X$ and the medium-term advantages based on $M$. We construct threshold-type Feedback Nash Equilibria which characterize stationary strategies describing long-run dynamic equilibrium market organization. Two sequential approximation schemes link the switching equilibrium to (i) constrained optimal switching, (ii) multi-stage timing games. We provide illustrations using an Ornstein-Uhlenbeck $X$ that leads to a recurrent equilibrium $M^\ast$ and a Geometric Brownian Motion $X$ that makes $M^\ast$ eventually "absorbed" as one player eventually gains permanent advantage. Explicit computations and comparative statics regarding the emergent macroscopic market equilibrium are also provided. – Name: TypeDocument Label: Document Type Group: TypDoc Data: Working Paper – Name: URL Label: Access URL Group: URL Data: <link linkTarget="URL" linkTerm="http://arxiv.org/abs/1807.03893" linkWindow="_blank">http://arxiv.org/abs/1807.03893</link> – Name: AN Label: Accession Number Group: ID Data: edsarx.1807.03893 |
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| RecordInfo | BibRecord: BibEntity: Subjects: – SubjectFull: Economics - General Economics Type: general – SubjectFull: 91A15, 91B52, 93E20, 62L15 Type: general Titles: – TitleFull: Stochastic Switching Games Type: main BibRelationships: HasContributorRelationships: – PersonEntity: Name: NameFull: Li, Liangchen – PersonEntity: Name: NameFull: Ludkovski, Michael IsPartOfRelationships: – BibEntity: Dates: – D: 10 M: 07 Type: published Y: 2018 |
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