Mean field game of optimal relative investment with jump risk

Abstract

In this paper, we study the n-player game and the mean field game under the constant relative risk aversion relative performance on terminal wealth, in which the interaction occurs by peer competition. In the model with n agents, the price dynamics of underlying risky assets depend on a common noise and contagious jump risk modeled by a multi-dimensional nonlinear Hawkes process. With a continuum of agents, we formulate the mean field game problem and characterize a deterministic mean field equilibrium in an analytical form under some conditions, allowing us to investigate some impacts of model parameters in the limiting model and discuss some financial implications. Moreover, based on the mean field equilibrium, we construct an approximate Nash equilibrium for the n-player game when n is sufficiently large. The explicit order of the approximation error is also derived.