Volatility and efficiency in markets with friction

descriptionPublicationkeyboard_double_arrow_right Article , Conference object 01 Sep 2010Publisher:IEEEJournal:2010 48th Annual Allerton Conference on Communication, Control, and Computing (Allerton)

Authors: Arman C. Kizilkale; Shie Mannor;

doi: 10.1109/allerton.2010.5706887

Volatility and efficiency in markets with friction

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Abstract

We consider a game theoretic model where multiple suppliers and consumers interact continuously by setting prices in a dynamic market with friction. Using stochastic differential equations to model the dynamics with friction, we investigate the equilibrium, and analyze the efficiency of the market under an integrated expected cost function. We provide an intriguing efficiency-volatility tradeoff theorem.

Related Organizations

Technion – Israel Institute of Technology
Israel
McGill University
Canada

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