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Mathematical Finance and Probability Seminars

Strategic trading with regulatory constraints

Location:  Hill 705
Date & time: Tuesday, 27 September 2016 at 11:45AM -

Tuan Tran, McMaster University

 

"Strategic trading with regulatory constraints"

Time: 11:45 AM
Location: Hill 705
Abstract: In this paper we study how regulatory constraints such as liquidity and capital requirements affect the equilibrium price of assets and the behaviour of financial institutions participating on the open market. We consider a static game theoretic model, where each agent is a regulated bank that aims to maximize their profit while still satisfying a certain liquidity or capital requirements set up by the regulator. Trading is assumed to bear transaction costs and has an impact on the asset price via a aggregate demand function. With this setup, we prove the existence of Nash equilibrium strategies for the game and provide algorithms to find these equilibrium strategies in linear time.

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Department of Mathematics

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