A variational approach for price formation models in one dimension

Abstract

In this paper, we study a class of first-order mean-field games (MFGs) that model price formation. Using Poincaré lemma, we eliminate one of the equations of the MFGs system and obtain a variational problem for a single function. We prove the uniqueness of the solutions to the variational problem and address the existence of solutions by applying relaxation arguments. Moreover, we establish a correspondence between solutions of the MFGs system and the variational problem. Based on this correspondence, we introduce an alternative numerical approach for the solution of the original MFGs problem. We end the paper with numerical results for a linear-quadratic model.