345 research outputs found
Utility maximization with random horizon: a BSDE approach
International audienceIn this paper we study a utility maximization problem with random horizon and reduce it to the analysis of a specific BSDE, which we call BSDE with singular coefficients, when the support of the default time is assumed to be bounded. We prove existence and uniqueness of the solution for the equation under interest. Our results are illustrated by numerical simulations
Random Time Forward Starting Options
We introduce a natural generalization of the forward-starting options, first
discussed by M. Rubinstein. The main feature of the contract presented here is
that the strike-determination time is not fixed ex-ante, but allowed to be
random, usually related to the occurrence of some event, either of financial
nature or not. We will call these options {\bf Random Time Forward Starting
(RTFS)}. We show that, under an appropriate "martingale preserving" hypothesis,
we can exhibit arbitrage free prices, which can be explicitly computed in many
classical market models, at least under independence between the random time
and the assets' prices. Practical implementations of the pricing methodologies
are also provided. Finally a credit value adjustment formula for these OTC
options is computed for the unilateral counterparty credit risk.Comment: 19 pages, 1 figur
G-Brownian Motion as Rough Paths and Differential Equations Driven by G-Brownian Motion
The present paper is devoted to the study of sample paths of G-Brownian
motion and stochastic differential equations (SDEs) driven by G-Brownian motion
from the view of rough path theory. As the starting point, we show that
quasi-surely, sample paths of G-Brownian motion can be enhanced to the second
level in a canonical way so that they become geometric rough paths of roughness
2 < p < 3. This result enables us to introduce the notion of rough differential
equations (RDEs) driven by G-Brownian motion in the pathwise sense under the
general framework of rough paths. Next we establish the fundamental relation
between SDEs and RDEs driven by G-Brownian motion. As an application, we
introduce the notion of SDEs on a differentiable manifold driven by GBrownian
motion and construct solutions from the RDE point of view by using pathwise
localization technique. This is the starting point of introducing G-Brownian
motion on a Riemannian manifold, based on the idea of Eells-Elworthy-Malliavin.
The last part of this paper is devoted to such construction for a wide and
interesting class of G-functions whose invariant group is the orthogonal group.
We also develop the Euler-Maruyama approximation for SDEs driven by G-Brownian
motion of independent interest
Brownian Motions on Metric Graphs
Brownian motions on a metric graph are defined. Their generators are
characterized as Laplace operators subject to Wentzell boundary at every
vertex. Conversely, given a set of Wentzell boundary conditions at the vertices
of a metric graph, a Brownian motion is constructed pathwise on this graph so
that its generator satisfies the given boundary conditions.Comment: 43 pages, 7 figures. 2nd revision of our article 1102.4937: The
introduction has been modified, several references were added. This article
will appear in the special issue of Journal of Mathematical Physics
celebrating Elliott Lieb's 80th birthda
On arbitrages arising from honest times
In the context of a general continuous financial market model, we study
whether the additional information associated with an honest time gives rise to
arbitrage profits. By relying on the theory of progressive enlargement of
filtrations, we explicitly show that no kind of arbitrage profit can ever be
realised strictly before an honest time, while classical arbitrage
opportunities can be realised exactly at an honest time as well as after an
honest time. Moreover, stronger arbitrages of the first kind can only be
obtained by trading as soon as an honest time occurs. We carefully study the
behavior of local martingale deflators and consider no-arbitrage-type
conditions weaker than NFLVR.Comment: 25 pages, revised versio
Drift dependence of optimal trade execution strategies under transient price impact
We give a complete solution to the problem of minimizing the expected
liquidity costs in presence of a general drift when the underlying market
impact model has linear transient price impact with exponential resilience. It
turns out that this problem is well-posed only if the drift is absolutely
continuous. Optimal strategies often do not exist, and when they do, they
depend strongly on the derivative of the drift. Our approach uses elements from
singular stochastic control, even though the problem is essentially
non-Markovian due to the transience of price impact and the lack in Markovian
structure of the underlying price process. As a corollary, we give a complete
solution to the minimization of a certain cost-risk criterion in our setting
Observability and nonlinear filtering
This paper develops a connection between the asymptotic stability of
nonlinear filters and a notion of observability. We consider a general class of
hidden Markov models in continuous time with compact signal state space, and
call such a model observable if no two initial measures of the signal process
give rise to the same law of the observation process. We demonstrate that
observability implies stability of the filter, i.e., the filtered estimates
become insensitive to the initial measure at large times. For the special case
where the signal is a finite-state Markov process and the observations are of
the white noise type, a complete (necessary and sufficient) characterization of
filter stability is obtained in terms of a slightly weaker detectability
condition. In addition to observability, the role of controllability in filter
stability is explored. Finally, the results are partially extended to
non-compact signal state spaces
Calculus and heat flow in metric measure spaces and applications to spaces with Ricci bounds from below
This paper is devoted to a deeper understanding of the heat flow and to the
refinement of calculus tools on metric measure spaces (X,d,m). Our main results
are:
- A general study of the relations between the Hopf-Lax semigroup and
Hamilton-Jacobi equation in metric spaces (X,d).
- The equivalence of the heat flow in L^2(X,m) generated by a suitable
Dirichlet energy and the Wasserstein gradient flow of the relative entropy
functional in the space of probability measures P(X).
- The proof of density in energy of Lipschitz functions in the Sobolev space
W^{1,2}(X,d,m).
- A fine and very general analysis of the differentiability properties of a
large class of Kantorovich potentials, in connection with the optimal transport
problem.
Our results apply in particular to spaces satisfying Ricci curvature bounds
in the sense of Lott & Villani [30] and Sturm [39,40], and require neither the
doubling property nor the validity of the local Poincar\'e inequality.Comment: Minor typos corrected and many small improvements added. Lemma 2.4,
Lemma 2.10, Prop. 5.7, Rem. 5.8, Thm. 6.3 added. Rem. 4.7, Prop. 4.8, Prop.
4.15 and Thm 4.16 augmented/reenforced. Proof of Thm. 4.16 and Lemma 9.6
simplified. Thm. 8.6 corrected. A simpler axiomatization of weak gradients,
still equivalent to all other ones, has been propose
Large closed queueing networks in semi-Markov environment and its application
The paper studies closed queueing networks containing a server station and
client stations. The server station is an infinite server queueing system,
and client stations are single-server queueing systems with autonomous service,
i.e. every client station serves customers (units) only at random instants
generated by a strictly stationary and ergodic sequence of random variables.
The total number of units in the network is . The expected times between
departures in client stations are . After a service completion
in the server station, a unit is transmitted to the th client station with
probability , and being processed in the th client
station, the unit returns to the server station. The network is assumed to be
in a semi-Markov environment. A semi-Markov environment is defined by a finite
or countable infinite Markov chain and by sequences of independent and
identically distributed random variables. Then the routing probabilities
and transmission rates (which are expressed via
parameters of the network) depend on a Markov state of the environment. The
paper studies the queue-length processes in client stations of this network and
is aimed to the analysis of performance measures associated with this network.
The questions risen in this paper have immediate relation to quality control of
complex telecommunication networks, and the obtained results are expected to
lead to the solutions to many practical problems of this area of research.Comment: 35 pages, 1 figure, 12pt, accepted: Acta Appl. Mat
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