Since many independent traders and probably a more than a few in firms [if they can get away with it] ignore the basis of option pricing [hedging in complete markets] and make 'bets' with their options and the fact that markets may not be complete, it would seem that there would be more academic work and applications of game theory for QF than there are. Of course alot of people think game theory was an idea that never really worked in practice or is too much psychology/socialology rather than 'science' but given that it is humans rather than just equations traders deal with, the fact that there is money to be made should have produced more research than there has been for QF.

I think there does exist a large literature, but depends on what you mean by QF and game theory. most theory papers make use of game theory one way or other. check out the somewhat outdated and short survey by allen and morris - 'finance applications of game theory'.and brunnermeier's book 'asset pricing under assymetric information'.

I'm refering to derivatives trading--I probably should have said FE rather than QF. I know there is a large literature in finance on Game Theory---I get tons of it from reading Econometrica---but there does not seem to be much for derivatives---Grenadier Steven 'Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms' RFS Summer 02Shafer Glenn, Vladimir Vovk 'Probability and Finance:It is Only a Game-New Game-Theoretic Approach to Probability & Finance' Wiley 2001Sirbu Mihai, Steven Shreve 'A Two-Person Game for Pricing Convertible Bonds' 4/05 There is some literature for game theory for Real Options but I suspect most people reading the Forum are not interested in jobs/opportunities in industry.

Something that might be interesting is to think of a situation in which the Nash equilibrium is something different than the no-arbitrage condition. (I suspect that in almost all of the real cases, the Nash equlibrium is the no arbitrage condition, but the exceptions could be interesting. Maybe something in thinly traded markets or with insider information).Also, a "jump" may be modelable by assuming multiple game theoretic equlibrium points with a jump in between them.

I don't understand what sort of applications you think there would be . . . game theory in poker and in corporate strategy both apply when your decisions/actions are likely to affect those of your competitors. If you were a huge market maker, maybe it would be applicable . . . otherwise, unless you are sitting at a table with other derivatives traders and only trading among yourselves, I don't see the connection.

There are all kinds of games---though some might consider them psychology. Floor traders bluff/intimidate each other all the time. Desk traders are asked for quotes on products they don't want to make a deal on but can't admit they don't have a model or 'correct' price price for or management won't let them deal. They will do what research they can, find a price that will sound intelligent to the other side but that the otherside will reject but not think the price'dumb.' Desk traders will recognize a bad price quote from another party and decide if taking it will make the otherside 'too' mad when they realize it that they won't deal with the desk trader [company] again. While more common for corporate deals, I can see 'winner curse' situtations in derivative trading, esp. with credit derivatives though I'd have to think that out more. On a more 'economic' issue, salary and bonus; threats to leave if 'required' level is not met.

Not so much game theory as out and out trickery. Good old fashioned bluffing is in there as well. Moving the markets. There are many "behavioural" trading strategies.

One of the things about game theory that separates it from 'trickery' is that you don't consider just the first response, but possible responses and counter-response several links down the chain.

QuoteOriginally posted by: jfuquaOne of the things about game theory that separates it from 'trickery' is that you don't consider just the first response, but possible responses and counter-response several links down the chain.Kind of like a decision tree based on probabilities. Negotiation and/or alliances can affect these aka The Prisoner's Dilemma.

I've done a course in game theory. We used the book by Morris, and I think that's the most useless course I've ever done.

on that point: http://arielrubinstein.tau.ac.il/papers ... Originally posted by: jorgenbgI've done a course in game theory. We used the book by Morris, and I think that's the most useless course I've ever done.

To summarise: don't waste your time.