2023/12/12 by Tiziano De Angelis, De Angelis, Tiziano, Fabien Gensbittel +3 · 1 citation
Decision Sciences · Economics, Econometrics and Finance · #35R35 #60J60 #91A15 #91G50 #93E20 #Economic theories and models #FOS: Economics and business #FOS: Mathematics #Game Theory and Applications #Mathematical Finance (q-fin.MF) #Optimization and Control (math.OC) #Probability (math.PR) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.2312.07703
openalex publication_date 2023/12/12 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We construct Nash equilibria in feedback form for a class of two-person stochastic games of singular control with absorption, arising from a stylized model for corporate finance. More precisely, the paper focusses on a strategic dynamic game in which two financially-constrained firms operate in the same market. The firms distribute dividends and are faced with default risk. The strategic interaction arises from the fact that if one firm defaults, the other one becomes a monopolist and increases its profitability. The firms choose their dividend distribution policies from a class of randomised strategies and we identify two types of equilibria, depending on the firms' initial endowments. In both situations the optimal strategies and the equilibrium payoffs are found explicitly.