Seminar: Stackelberg games and stochastic targets
October 16 @ 9:00 am - 10:00 am CDT
Speaker: Dylan Possamaï, ETH Zürich
Abstract: In this talk, we provide a general approach to reformulating any continuous-time stochastic Stackelberg differential game under closed-loop strategies as a single-level optimisation problem with target constraints. More precisely, we consider a Stackelberg game in which the leader and the follower can both control the drift and the volatility of a stochastic output process, in order to maximise their respective expected utility. The aim is to characterise the Stackelberg equilibrium when the players adopt “closed-loop strategies”, i.e. their decisions are based solely on the historical information of the output process, excluding especially any direct dependence on the underlying driving noise, often unobservable in real-world applications. We first show that, by considering the-second-order-backward stochastic differential equation associated with the continuation utility of the follower as a controlled state variable for the leader, the latter’s unconventional optimisation problem can be reformulated as a more standard stochastic control problem with stochastic target constraints. Thereafter, adapting the methodology developed by Soner and Touzi or Bouchard, Elie, and Imbert, the optimal strategies, as well as the corresponding value of the Stackelberg equilibrium, can be characterised through the solution of a well-specified system of Hamilton-Jacobi-Bellman equations. For a more comprehensive insight, we illustrate our approach through a simple example, facilitating both theoretical and numerical detailed comparisons with the solutions under different information structures studied in the literature.
Hongwei Mei is inviting you to a scheduled Zoom meeting.
Topic: Mathematical Finance Seminar
Time: Oct 16, 2026 09:00 AM Central Time (US and Canada)
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