"Relative Arbitrage Opportunities in N Investors and Mean-Field Regimes" by Nicole Yang (PSTAT)

Event Date: 

Monday, October 19, 2020 - 3:30pm to 4:30pm

Title: Relative Arbitrage Opportunities in N Investors and Mean-Field Regimes


The relative arbitrage portfolio, formulated in Stochastic Portfolio Theory(SPT), outperforms a benchmark portfolio over a given time-horizon with probability one. This paper analyzes the market behavior and optimal investment strategies to attain relative arbitrage both in the N investors and mean field regimes under some market conditions. An investor competes with a benchmark of market and peer investors, expecting to outperform the benchmark and minimizing the initial capital. 

With market price of risk processes depending on the market portfolio and investors, we develop a systematic way to solve a multi-agent optimization problem within SPT's framework. The objective can be characterized by the smallest nonnegative continuous solution of a Cauchy problem. By a modification in the structure of the extended mean field game with common noise and its notion of the uniqueness of Nash equilibrium, we show a unique equilibrium in N-player games and mean field games with mild conditions on the equity market. Based on the high-dimensional nature of the problem, numerical schemes will also be discussed. This talk is based on a paper with Tomoyuki Ichiba.