Second-order monotonicity conditions and mean field games with volatility control

Abstract: In this manuscript we study the well-posedness of the master equations for mean field games with volatility control. This infinite dimensional PDE is nonlinear with respect to both the first and second-order derivatives of its solution. For standard mean field games with only drift control, it is well-known that certain monotonicity condition is essential for the uniqueness of mean field equilibria and for the global well-posedness of the master equations. To adapt to the current setting with volatility control, we propose a new notion called second-order monotonicity conditions. Surprisingly, the second-order Lasry-Lions monotonicity is equivalent to its standard (first-order) version, but such an equivalency fails for displacement monotonicity. When the Hamiltonian is separable and the data are Lasry-Lions monotone, we show that the Lasry-Lions monotonicity propagates and the master equation admits a unique classical solution. This is the first work for the well-posedness, both local and global, of master equations when the volatility is controlled.