General Markovian randomized equilibrium existence and construction in zero-sum Dynkin games for diffusions

Abstract

One of the most classical games for stochastic processes is the zero-sum Dynkin (stopping) game. We present a complete equilibrium solution to a general formulation of this game with an underlying one-dimensional diffusion. A key result is the construction of a characterizable global $\epsilon$-Nash equilibrium in Markovian randomized stopping times for every $\epsilon > 0$. This is achieved by leveraging the well-known equilibrium structure under a restrictive ordering condition on the payoff functions, leading to a novel approach based on an appropriate notion of randomization that allows for solving the general game without any ordering condition. Additionally, we provide conditions for the existence of pure and randomized Nash equilibria (with $\epsilon=0$). Our results enable explicit identification of equilibrium stopping times and their corresponding values in many cases, illustrated by several examples.