Nash competition for dynamic long-lived information with risk aversion

Abstract

This study investigates adaptive equilibrium strategies for multiple risk-averse informed traders in Almgren-Chriss framework. Dynamic information and transaction costs are taken into account. Using a convex analytic approach, we characterize the open-loop Nash equilibrium in terms of a system of linear forward-backward stochastic differential equations, and further provide an explicit feedback expression of the unique equilibrium. The results show how risk-averse informed traders exploit long-lived information and manage positions in the face of information volatility and inaccuracy.

Keywords

Informed trading / Price impact / Stochastic differential game / Nash equilibrium / Risk aversion

Acknowledgements

Yufeng Shi gratefully acknowledges the support from Taishan Scholar Project of Shandong Province of China (Grant tstp20240803), the National Key R&D Program of China (Grant No. 2023YFA1008903), the Major Fundamental Research Project of Shandong Province of China (Grant No. ZR2023ZD33) and the Natural Science Foundation of Shandong Province (Grant No. ZR2023LLZ012).

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