A Mean-Field Game Approach to Price Formation

Diogo A. Gomes, João Saúde

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22 Scopus citations

Abstract

Here, we introduce a price formation model where a large number of small players can store and trade a commodity such as electricity. Our model is a constrained mean-field game (MFG) where the price is a Lagrange multiplier for the supply versus demand balance condition. We establish the existence of a unique solution using a fixed-point argument. In particular, we show that the price is well defined, and it is a Lipschitz function of time. Then, we study linear-quadratic models that can be solved explicitly and compare our model with real data.
Original languageEnglish (US)
JournalDynamic Games and Applications
DOIs
StatePublished - Feb 17 2020

Bibliographical note

KAUST Repository Item: Exported on 2020-10-01
Acknowledgements: Diogo A. Gomes was partially supported by KAUST baseline funds and KAUST OSR-CRG2017-3452. João Saúde was partially supported by FCT/Portugal through the CMU-Portugal Program.

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