deterministic multi-player dynkin games - tau.pdfVIP

Journal of Mathematical Economics 1097 (2003) 1–19 Deterministic multi-player Dynkin games Eilon Solan a,b,∗, Nicolas Vieille c a MEDS Department, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, USA b School of Mathematical Sciences, Tel Aviv University, Tel Aviv, Israel c Département Finance et Economie, HEC, 1 rue de la Libération, 78 351 Jouy-en-Josas, France Received 3 September 2002; received in revised form 22 January 2003; accepted 28 January 2003 Abstract A multi-player Dynkin game is a sequential game in which at every stage one of the players is chosen, and that player can decide whether to continue the game or to stop it, in which case all players receive some terminal payoff. We study a variant of this model, where the order by which players are chosen is deterministic, and the probability that the game terminates once the chosen player decides to stop may be strictly less than 1. We prove that a subgame-perfect -equilibrium in Markovian strategies exists. If the game is not degenerate this -equilibrium is actually in pure strategies. © 2003 Elsevier Science B.V. All rights reserved. JEL classification: C73 Keywords: Dynkin game; Stochastic game; Equilibrium; n-player games 1. Introduction Dynkin (1969) introduced the following zero-sum game of optimal stopping. The game involves two players, and two stochastic processes: (i ) N is a {1, 2}-valued process, n n∈NN R2 which indicates which player is active at stage n, and (rn ) N is a RR -valued process, which