The Potential Method For Price-Formation Models

We consider the mean-field game price formation model introduced by Gomes and Saúde. In this MFG model, agents trade a commodity whose supply can be deterministic or stochastic. Agents maximize profit, taking into account current and future prices. The balance between supply and demand determines th...

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Bibliographic Details
Published in:arXiv.org 2022-04
Main Authors: Ashrafyan, Yuri, Bakaryan, Tigran, Gomes, Diogo, Gutierrez, Julian
Format: Article
Language:English
Subjects:
Exact solutions
Machine learning
Recurrent neural networks
Online Access:Get full text
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Summary:We consider the mean-field game price formation model introduced by Gomes and Saúde. In this MFG model, agents trade a commodity whose supply can be deterministic or stochastic. Agents maximize profit, taking into account current and future prices. The balance between supply and demand determines the price. We introduce a potential function that converts the MFG into a convex variational problem. This variational formulation is particularly suitable for machine learning approaches. Here, we use a recurrent neural network to solve this problem. In the last section of the paper, we compare our results with known analytical solutions.
ISSN:2331-8422