Contract Adjustment under Uncertainty

Consider a contract over trade in continuous time between two players, according to which one player makes a payment to the other, in exchange for an exogenous service. At each point in time, either player may unilaterally require an adjustment of the contract payment, involving adjustment costs for both players. Players’ payoffs from trade under the contract, as well as from trade under an adjusted contract, are exogenous and stochastic. We consider players’ choice of whether and when to adjust the contract payment. It is argued that the optimal strategy for each player is to adjust the contract whenever the contract payment relative to the outcome of an adjustment passes a certain threshold, depending among other things of the adjustment costs. There is strategic substitutability in the choice of thresholds, so that if one player becomes more aggressive by choosing a threshold closer to unity, the other player becomes more passive. If players may invest in order to reduce the adjustment costs, there will be over-investment compared to the welfare maximizing levels.

A combined sine-Gordon and modified Korteweg-de Vries hierarchy and its algebro-geometric solutions

We derive a zero-curvature formalism for a combined sine-Gordon (sG) and modified Korteweg-de Vries (mKdV) equation which yields a local sGmKdV hierarchy. In complete analogy to other completely integrable hierarchies of soliton equations, such as the KdV, AKNS, and Toda hierarchies, the sGmKdV hierarchy is recursively constructed by means of a fundamental polynomial formalism involving a spectral parameter. We further illustrate our approach by developing the basic algebro-geometric setting for the sGmKdV hierarchy, including Baker-Akhiezer functions, trace formulas, Dubrovin-type equations, and theta function representations for its algebro-geometric solutions. Although we mainly focus on sG-type equations, our formalism also yields the sinh-Gordon, elliptic sine-Gordon, elliptic sinh-Gordon, and Liouville-type equations combined with the mKdV hierarchy.Comment: LaTeX; emphasis put on the mKdV hierarch

The Damped String Problem Revisited

We revisit the damped string equation on a compact interval with a variety of boundary conditions and derive an infinite sequence of trace formulas associated with it, employing methods familiar from supersymmetric quantum mechanics. We also derive completeness and Riesz basis results (with parentheses) for the associated root functions under less smoothness assumptions on the coefficients than usual, using operator theoretic methods (rather than detailed eigenvalue and root function asymptotics) only.Comment: 39 page