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arXiv · 2204.01435

The Potential Method For Price-Formation Models

Yuri Ashrafyan·Tigran Bakaryan·Diogo Gomes·Julian Gutierrez
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Abstract

We consider the mean-field game price formation model introduced by Gomes and Sa\'ude. 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.

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Yuri Ashrafyan, Tigran Bakaryan, Diogo Gomes, Julian Gutierrez. 2022-04-04. The Potential Method For Price-Formation Models. https://arxiv.org/abs/2204.01435

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