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A Mean-Field Game of Market Entry: Portfolio Liquidation with Trading Constraints

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  • Guanxing Fu
  • Paul P. Hager
  • Ulrich Horst

Abstract

We consider both $N$-player and mean-field games of optimal portfolio liquidation in which the players are not allowed to change the direction of trading. Players with an initially short position of stocks are only allowed to buy while players with an initially long position are only allowed to sell the stock. Under suitable conditions on the model parameters we show that the games are equivalent to games of timing where the players need to determine the optimal times of market entry and exit. We identify the equilibrium entry and exit times and prove that equilibrium mean-trading rates can be characterized in terms of the solutions to a highly non-linear higher-order integral equation with endogenous terminal condition. We prove the existence of a unique solution to the integral equation from which we obtain the existence of a unique equilibrium both in the mean-field and the $N$-player game.

Suggested Citation

  • Guanxing Fu & Paul P. Hager & Ulrich Horst, 2024. "A Mean-Field Game of Market Entry: Portfolio Liquidation with Trading Constraints," Papers 2403.10441, arXiv.org.
    • Handle: RePEc:arx:papers:2403.10441
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    References listed on IDEAS

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    7. Eyal Neuman & Moritz Vo{ss}, 2021. "Trading with the Crowd," Papers 2106.09267, arXiv.org, revised Mar 2023.
    8. Fu, Guanxing & Horst, Ulrich & Xia, Xiaonyu, 2022. "Portfolio Liquidation Games with Self-Exciting Order Flow," Rationality and Competition Discussion Paper Series 327, CRC TRR 190 Rationality and Competition.
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    Full references (including those not matched with items on IDEAS)

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