Mathematical Finance Seminar
RUD 25 1.113
Diogo Gomes

A mean-field game approach to price formation

Here, we introduce a price-formation model where a large number of small players can store and trade an asset. Our model is a constrained mean-field game (MFG) where the price is a Lagrange multiplier for the supply vs. 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.