A probabilistic approach to mean field games with major and minor players

Rene A. Carmona, Xiuneng Zhu

Research output: Contribution to journalArticle

16 Scopus citations

Abstract

We propose a new approach to mean field games with major and minor players. Our formulation involves a two player game where the optimization of the representative minor player is standard while the major player faces an optimization over conditional McKean-Vlasov stochastic differential equations. The definition of this limiting game is justified by proving that its solution provides approximate Nash equilibriums for large finite player games. This proof depends upon the generalization of standard results on the propagation of chaos to conditional dynamics. Because it is of independent interest, we prove this generalization in full detail. Using a conditional form of the Pontryagin stochastic maximum principle (proven in the Appendix), we reduce the solution of the mean field game to a forward-backward system of stochastic differential equations of the conditional McKean-Vlasov type, which we solve in the linear quadratic setting. We use this class of models to show that Nash equilibriums in our formulation can be different from those originally found in the literature.

Original languageEnglish (US)
Pages (from-to)1535-1580
Number of pages46
JournalAnnals of Applied Probability
Volume26
Issue number3
DOIs
StatePublished - Jun 2016

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Statistics, Probability and Uncertainty

Keywords

  • McKean-Vlasov diffusion
  • Mean field games
  • Mean-field forward-backward stochastic differential equation
  • Mean-field interaction
  • Stochastic Pontryagin principle
  • Stochastic control

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