Mean-Field Games of Price Formation with Uncertain Supply

Ricardo Ribeiro, KAUST

Abstract:

We study price formation in markets where a large number of agents trade a commodity subject to uncertain supply—such as electricity from renewable sources. Using the Mean-Field Games (MFG) framework, we model agents optimizing their trading rates in response to a price that evolves under a market-clearing condition. The resulting system couples stochastic differential equations for the price with forward-backward PDEs for the agents’ behavior. Under linear-quadratic assumptions, we obtain semi-explicit characterizations of the equilibrium. If time allows, we will briefly discuss related variational formulations and numerical approaches.