2020/03/10 by Shrivats, Arvind, Firoozi, Dena, Jaimungal, Sebastian · 3 citations
#34H05 #37A50 #49J50 #49N70 #49N90 #93C95 #FOS: Economics and business #FOS: Electrical engineering #FOS: Mathematics #Mathematical Finance (q-fin.MF) #Optimization and Control (math.OC) #Systems and Control (eess.SY) #Theoretical Economics (econ.TH) #Trading and Market Microstructure (q-fin.TR) #electronic engineering #information engineering
paper · doi:10.48550/arxiv.2003.04938
Solar Renewable Energy Certificate (SREC) markets are a market-based system that incentivizes solar energy generation. A regulatory body imposes a lower bound on the amount of energy each regulated firm must generate via solar means, providing them with a tradeable certificate for each MWh generated. Firms seek to navigate the market optimally by modulating their SREC generation and trading rates. As such, the SREC market can be viewed as a stochastic game, where agents interact through the SREC price. We study this stochastic game by solving the mean-field game (MFG) limit with sub-populations of heterogeneous agents. Market participants optimize costs accounting for trading frictions, cost of generation, non-linear non-compliance costs, and generation uncertainty. Moreover, we endogenize SREC price through market clearing. We characterize firms' optimal controls as the solution of McKean-Vlasov (MV) FBSDEs and determine the equilibrium SREC price. We establish the existence and uniqueness of a solution to this MV-FBSDE, and prove that the MFG strategies form an ε-Nash equilibrium for the finite player game. Finally, we develop a numerical scheme for solving the MV-FBSDEs and conduct a simulation study.