2025/06/10 by Philippe Bergault, Bergault, Philippe, Pierre Cardaliaguet +3
Economics, Econometrics and Finance · Business, Management and Accounting · #Stochastic processes and financial applications #Risk Management in Financial Firms #Financial Markets and Investment Strategies
paper · pdf · doi:10.48550/arxiv.2506.08992
This paper investigates the optimal hedging strategies of an informed broker interacting with multiple traders in a financial market. We develop a theoretical framework in which the broker, possessing exclusive information about the drift of the asset's price, engages with traders whose trading activities impact the market price. Using a mean-field game approach, we derive the equilibrium strategies for both the broker and the traders, illustrating the intricate dynamics of their interactions. The broker's optimal strategy involves a Stackelberg equilibrium, where the broker leads and the traders follow. Our analysis also addresses the mean field limit of finite-player models and shows the convergence to the mean-field solution as the number of traders becomes large.