Optimal Transport and Equilibrium Problems in Mathematical Finance
By: Xiaowei Tan
Publisher: [publisher not identified]
Published: 2019
Place of publication: [New York, N.Y.?]
Language: eng
Description: The thesis consists of three independent topics, each of which is discussed in an individual chapter. The first chapter considers a multiperiod optimal transport problem where distributions μ0, . . . , μn are prescribed and a transport corresponds to a scalar martingale X with marginals Xt ∼ μt. We introduce particular couplings called left-monotone transports; they are characterized equivalently by a no-crossing property of their support, as simultaneous optimizers for a class of bivariate transport cost functions with a Spence–Mirrlees property, and by an order-theoretic minimality property. Left-monotone transports are unique if μ0 is atomless, but not in general. In the one-period case n = 1, these transports reduce to the Left-Curtain coupling of Beiglbo ̈ck and Juillet. In the multiperiod case, the bivariate marginals for dates (0,t) are of Left-Curtain type, if and only if μ0, . . . , μn have a specific order property. The general analysis of the transport problem also gives rise to a strong duality result and a description of its polar sets.

Finally, we study a variant where the intermediate marginals μ1,...,μn−1 are not prescribed. The second chapter studies the convergence of Nash equilibria in a game of optimal stopping. If the associated mean field game has a unique equilibrium, any sequence of n-player equilibria converges to it as n → ∞. However, both the finite and infinite player versions of the game often admit multiple equilibria. We show that mean field equilibria satisfying a transversality condition are limit points of n-player equilibria, but we also exhibit a remarkable class of mean field equilibria that are not limits, thus questioning their interpretation as “large n” equilibria. The third chapter studies the equilibrium price of an asset that is traded in continuous time between N agents who have heterogeneous beliefs about the state process underlying the asset’s payoff. We propose a tractable model where agents maximize expected returns under quadratic costs on inventories and trading rates. The unique equilibrium price is characterized by a weakly coupled system of linear parabolic equations which shows that holding and liquidity costs play dual roles.

We derive the leading-order asymptotics for small transaction and holding costs which give further insight into the equilibrium and the consequences of illiquidity.
Notes: Department: Mathematics.

Thesis advisor: Marcel Nutz.

Thesis (Ph.D.)--Columbia University, 2019.