SIAM Journal on Financial Mathematics· 2026Q1
Predictable Relative Forward Performance Processes: Multi-agent and Mean Field Games for Portfolio Management
- 0citations
- Q1SCImago
- 2026year
Short summary
A new framework, predictable relative forward performance processes (PRFPP), is introduced for portfolio management in competitive, incomplete markets, showing relative performance concerns can lead to shorting stocks with positive expected returns.
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Key points
- Introduces predictable relative forward performance processes (PRFPP) for portfolio management in competitive, incomplete markets.
- Models agents trading distinct stocks with binomial returns dependent on a stochastic market factor.
- Analyzes finite and mean field game equilibria, including associated equilibrium strategies.
- Demonstrates that relative performance concerns can lead to shorting stocks with positive expected excess returns.
AI-generated from the title and abstract; the full text is not read.
Abstract
Abstract. We introduce predictable relative forward performance processes (PRFPP) as a new framework for studying portfolio management within a competitive and incomplete market environment. Each agent trades a distinct stock following a binomial distribution with probabilities for a positive return depending on the market regime characterized by a nontraded stochastic factor. For both the finite population and mean field games, we construct and analyse PRFPPs for initial data of the CARA class along with the associated equilibrium strategies. We find that relative performance concerns do not necessarily lead to more investment in the risky asset compared to when there are no such concerns. Under some parameter constellations, agents short a stock with positive expected excess return. The binomial market setting facilitates a straightforward adjustment of risky asset skewness, enabling an analysis of its impact on investment behavior—an aspect that continuous-time frameworks cannot capture.
The authors' abstract, as published at the source. SIAM Journal on Financial Mathematics, 2026 · DOI ↗
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Field: Finance
FinanceEconomics, Econometrics and Finance