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Dynamic Games in Finance

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Handbook of Dynamic Game Theory

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Abstract

Finance is a discipline that encompasses all the essential ingredients of dynamic games, through the involvement of investors, managers, and financial intermediaries as players who have competing interests and who interact strategically over time. This chapter presents various applications of dynamic game models used in the broad area of finance, with the objective of illustrating the scope of possibilities in this field. Both corporate and investment finance applications are presented. Topics covered include game options and their use as financial instruments, bankruptcy games and their association with the valuation of debt and equity, and dynamic game models used to explain empirical observations about the financial decisions made by firms, for instance, on capital structure, dividend payments, and investment choices. In each case, the presentation highlights the game’s various ingredients, the choice of the equilibrium concept, and the solution approach used. The chapter’s focus is on the contributions made by dynamic game models to financial theory and practice.

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Notes

  1. 1.

    The sharing rule is not determined according to the APR but rather as a Nash bargaining solution where the players have exogenously fixed bargaining powers.

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Author information

Authors and Affiliations

  1. HEC Montréal, Montréal, QC, Canada

    Michèle Breton

Authors
  1. Michèle Breton
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Correspondence to Michèle Breton .

Editor information

Editors and Affiliations

  1. Center for Advanced Study, University of Illinois Urbana-Champaign, Urbana, Illinois, USA

    Tamer Basar

  2. GERAD, HEC Montréal, Montreal, Québec, Canada

    Georges Zaccour

Section Editor information

  1. Coordinated Science Laboratory and Department of Electrical and Computer Engineering, University of Illinois at Urbana-Champaign, 1308 West Main, 61801, Urbana, IL, USA

    Tamer Başar

  2. Département de sciences de la décision, GERAD, HEC Montréal, Montreal, QC, Canada

    Georges Zaccour

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Breton, M. (2018). Dynamic Games in Finance. In: Basar, T., Zaccour, G. (eds) Handbook of Dynamic Game Theory. Springer, Cham. https://doi.org/10.1007/978-3-319-27335-8_23-1

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  • DOI: https://doi.org/10.1007/978-3-319-27335-8_23-1

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  • Print ISBN: 978-3-319-27335-8

  • Online ISBN: 978-3-319-27335-8

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