Abstract
In this article, we consider the problem of equilibrium price formation in an incomplete securities market consisting of one major financial firm and a large number of minor firms. They carry out continuous trading via the securities exchange to minimize their cost while facing idiosyncratic and common noises as well as stochastic order flows from their individual clients. The equilibrium price process that balances demand and supply of the securities, including the functional form of the price impact for the major firm, is derived endogenously both in the market of finite population size and in the corresponding mean field limit.
Highlights
In the traditional setups for financial derivatives and portfolio theories, a security price process is given exogenously as a part of model inputs
In the field of financial economics, the problem of equilibrium price formation has been one of the central issues, which seeks an appropriate price process that balances demand and supply of securities among a large number of agents endogenously based on their preferences and rational actions
In the accompanying work [30], we proved the strong convergence of the finite agent equilibrium to the corresponding mean field limit given in [29]
Summary
Papers are a series of manuscripts in their draft form. They are not intended for circulation or distribution except as indicated by the author. For that reason Discussion Papers may not be reproduced or distributed without the written consent of the author
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
