Efficiency and equilibria in games of optimal derivative design |
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Authors: | Ulrich Horst Santiago Moreno-Bromberg |
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Institution: | 1. Institut f??r Mathematik, Humboldt-Universit?t zu Berlin, Unter den Linden 6, 10099, Berlin, Germany 2. Institut f??r Banking und Finance, Universit?t Z??rich, Plattenstra?e 32, 8032, Zurich, Switzerland
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Abstract: | In this paper, optimal derivative design when multiple firms compete for heterogenous customers is studied. Ties in the agents’
best responses generate discontinuous payoffs. Efficient tie-breaking rules are considered: In a first step, the model presented
by Carlier et al. (Math Financ Econ 1:57–80, 2007) is extended, and results of Page and Monteiro (J Math Econ 39:63–109, 2003, J Econ Theory 134:566–575, 2007, Econ Theory 34:503–524, 2008) are used to prove the existence of (mixed-strategies) Nash equilibria. In a second step, the case of risk minimizing firms
is studied. Socially efficient allocations are introduced, and their existence is proved. In particular, the entropic risk
measure is considered. |
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Keywords: | |
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