Stochastic Minimum Principle for Partially Observed Systems Subject to Continuous and Jump Diffusion Processes and Driven by Relaxed Controls

In this paper we consider non convex control problems of stochastic differential equations driven by relaxed controls. We present existence of optimal controls and then develop necessary conditions of optimality. We cover both continuous diffusion and Jump processes.Comment: Pages 23, Submitted to SIAM Journal on Control and Optimizatio

Optimal control of continuous-time Markov chains with noise-free observation

We consider an infinite horizon optimal control problem for a continuous-time Markov chain $X$ in a finite set $I$ with noise-free partial observation. The observation process is defined as $Y_t = h(X_t)$, $t \geq 0$, where $h$ is a given map defined on $I$. The observation is noise-free in the sense that the only source of randomness is the process $X$ itself. The aim is to minimize a discounted cost functional and study the associated value function $V$. After transforming the control problem with partial observation into one with complete observation (the separated problem) using filtering equations, we provide a link between the value function $v$ associated to the latter control problem and the original value function $V$. Then, we present two different characterizations of $v$ (and indirectly of $V$): on one hand as the unique fixed point of a suitably defined contraction mapping and on the other hand as the unique constrained viscosity solution (in the sense of Soner) of a HJB integro-differential equation. Under suitable assumptions, we finally prove the existence of an optimal control

Centralized Versus Decentralized Team Games of Distributed Stochastic Differential Decision Systems with Noiseless Information Structures-Part II: Applications

In this second part of our two-part paper, we invoke the stochastic maximum principle, conditional Hamiltonian and the coupled backward-forward stochastic differential equations of the first part [1] to derive team optimal decentralized strategies for distributed stochastic differential systems with noiseless information structures. We present examples of such team games of nonlinear as well as linear quadratic forms. In some cases we obtain closed form expressions of the optimal decentralized strategies. Through the examples, we illustrate the effect of information signaling among the decision makers in reducing the computational complexity of optimal decentralized decision strategies.Comment: 39 pages Submitted to IEEE Transaction on Automatic Contro

Deep Residual Learning via Large Sample Mean-Field Stochastic Optimization

We study a class of stochastic optimization problems of the mean-field type arising in the optimal training of a deep residual neural network. We consider the sampling problem arising from a continuous layer idealization, and establish the existence of optimal relaxed controls when the training set has finite size. The core of our paper is to prove the Gamma-convergence of the sequence of sampled objective functionals, i.e., show that as the size of the training set grows large, the minimizer of the sampled relaxed problem converges to that of the limiting optimization problem. We connect the limit of the large sampled objective functional to the unique solution, in the trajectory sense, of a nonlinear Fokker-Planck-Kolmogorov (FPK) equation in a random environment. We construct an example to show that, under mild assumptions, the optimal network weights can be numerically computed by solving a second-order differential equation with Neumann boundary conditions in the sense of distributions

Centralized systemic risk control in the interbank system: Relaxed control and Gamma-convergence

This paper studies a systemic risk control problem by the central bank, which dynamically plans monetary supply for the interbank system with borrowing and lending activities. Facing both heterogeneity among banks and the common noise, the central bank aims to find an optimal strategy to minimize the average distance between log-monetary reserves and some prescribed capital levels for all banks. A relaxed control approach is adopted, and an optimal randomized control can be obtained in the system with finite banks by applying Ekeland's variational principle. As the number of banks grows large, we further prove the convergence of optimal strategies using the Gamma-convergence arguments, which yields an optimal relaxed control in the mean field model. It is shown that the limiting optimal relaxed control is linked to a solution of a stochastic Fokker-Planck-Kolmogorov (FPK) equation. The uniqueness of the solution to the stochastic FPK equation is also established under some mild conditions.Comment: Keywords: Systemic risk; interbank system; relaxed control; mean field model; stochastic FPK equation; Gamma-convergenc

Mathematical control theory and Finance

Control theory provides a large set of theoretical and computational tools with applications in a wide range of fields, running from ”pure” branches of mathematics, like geometry, to more applied areas where the objective is to find solutions to ”real life” problems, as is the case in robotics, control of industrial processes or finance. The ”high tech” character of modern business has increased the need for advanced methods. These rely heavily on mathematical techniques and seem indispensable for competitiveness of modern enterprises. It became essential for the financial analyst to possess a high level of mathematical skills. Conversely, the complex challenges posed by the problems and models relevant to finance have, for a long time, been an important source of new research topics for mathematicians. The use of techniques from stochastic optimal control constitutes a well established and important branch of mathematical finance. Up to now, other branches of control theory have found comparatively less application in financial problems. To some extent, deterministic and stochastic control theories developed as different branches of mathematics. However, there are many points of contact between them and in recent years the exchange of ideas between these fields has intensified. Some concepts from stochastic calculus (e.g., rough paths) have drawn the attention of the deterministic control theory community. Also, some ideas and tools usual in deterministic control (e.g., geometric, algebraic or functional-analytic methods) can be successfully applied to stochastic control. We strongly believe in the possibility of a fruitful collaboration between specialists of deterministic and stochastic control theory and specialists in finance, both from academic and business backgrounds. It is this kind of collaboration that the organizers of the Workshop on Mathematical Control Theory and Finance wished to foster. This volume collects a set of original papers based on plenary lectures and selected contributed talks presented at the Workshop. They cover a wide range of current research topics on the mathematics of control systems and applications to finance. They should appeal to all those who are interested in research at the junction of these three important fields as well as those who seek special topics within this scope.info:eu-repo/semantics/publishedVersio

Anomalous transport in the crowded world of biological cells

A ubiquitous observation in cell biology is that diffusion of macromolecules and organelles is anomalous, and a description simply based on the conventional diffusion equation with diffusion constants measured in dilute solution fails. This is commonly attributed to macromolecular crowding in the interior of cells and in cellular membranes, summarising their densely packed and heterogeneous structures. The most familiar phenomenon is a power-law increase of the MSD, but there are other manifestations like strongly reduced and time-dependent diffusion coefficients, persistent correlations, non-gaussian distributions of the displacements, heterogeneous diffusion, and immobile particles. After a general introduction to the statistical description of slow, anomalous transport, we summarise some widely used theoretical models: gaussian models like FBM and Langevin equations for visco-elastic media, the CTRW model, and the Lorentz model describing obstructed transport in a heterogeneous environment. Emphasis is put on the spatio-temporal properties of the transport in terms of 2-point correlation functions, dynamic scaling behaviour, and how the models are distinguished by their propagators even for identical MSDs. Then, we review the theory underlying common experimental techniques in the presence of anomalous transport: single-particle tracking, FCS, and FRAP. We report on the large body of recent experimental evidence for anomalous transport in crowded biological media: in cyto- and nucleoplasm as well as in cellular membranes, complemented by in vitro experiments where model systems mimic physiological crowding conditions. Finally, computer simulations play an important role in testing the theoretical models and corroborating the experimental findings. The review is completed by a synthesis of the theoretical and experimental progress identifying open questions for future investigation.Comment: review article, to appear in Rep. Prog. Phy