On Optimal Harvesting in Stochastic Environments: Optimal Policies in a Relaxed Model

This paper examines the objective of optimally harvesting a single species in a stochastic environment. This problem has previously been analyzed in Alvarez (2000) using dynamic programming techniques and, due to the natural payoff structure of the price rate function (the price decreases as the population increases), no optimal harvesting policy exists. This paper establishes a relaxed formulation of the harvesting model in such a manner that existence of an optimal relaxed harvesting policy can not only be proven but also identified. The analysis embeds the harvesting problem in an infinite-dimensional linear program over a space of occupation measures in which the initial position enters as a parameter and then analyzes an auxiliary problem having fewer constraints. In this manner upper bounds are determined for the optimal value (with the given initial position); these bounds depend on the relation of the initial population size to a specific target size. The more interesting case occurs when the initial population exceeds this target size; a new argument is required to obtain a sharp upper bound. Though the initial population size only enters as a parameter, the value is determined in a closed-form functional expression of this parameter.Comment: Key Words: Singular stochastic control, linear programming, relaxed contro

Inverse Transport Theory of Photoacoustics

We consider the reconstruction of optical parameters in a domain of interest from photoacoustic data. Photoacoustic tomography (PAT) radiates high frequency electromagnetic waves into the domain and measures acoustic signals emitted by the resulting thermal expansion. Acoustic signals are then used to construct the deposited thermal energy map. The latter depends on the constitutive optical parameters in a nontrivial manner. In this paper, we develop and use an inverse transport theory with internal measurements to extract information on the optical coefficients from knowledge of the deposited thermal energy map. We consider the multi-measurement setting in which many electromagnetic radiation patterns are used to probe the domain of interest. By developing an expansion of the measurement operator into singular components, we show that the spatial variations of the intrinsic attenuation and the scattering coefficients may be reconstructed. We also reconstruct coefficients describing anisotropic scattering of photons, such as the anisotropy coefficient $g(x)$ in a Henyey-Greenstein phase function model. Finally, we derive stability estimates for the reconstructions

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

The Role of Hellinger Processes in Mathematical Finance

This paper illustrates the natural role that Hellinger processes can play in solving problems from ¯nance. We propose an extension of the concept of Hellinger process applicable to entropy distance and f-divergence distances, where f is a convex logarithmic function or a convex power function with general order q, 0 6= q < 1. These concepts lead to a new approach to Merton\u27s optimal portfolio problem and its dual in general L¶evy markets

No-arbitrage under a class of honest times

This paper quantifies the interplay between the no-arbitrage notion of no-unbounded-profit-with-bounded-risk (NUPBR hereafter) and additional progressiveinformation generated by a randomtime. This study complements the one of Aksamit et al. in which the authors have studied similar topics for the case of stopping at the randomtime instead, while herein we deal with the part after the occurrence of the randomtime. Given that all the literature, up to our knowledge, proves that NUPBR is always violated after honest times that avoid stopping times in a continuous filtration, herein we propose a new class of honest times for which NUPBR can be preserved for some models. For these honest times, we obtain two principal results. The first result characterizes the pairs of initial market and honest time for which the resulting model preserves NUPBR, while the second result characterizes honest times that do not affect NUPBR of any quasi-left-continuous model (i.e., model in which the assets’ price process has no predictable jump times). Furthermore, we construct explicitly local martingale deflators for a large class of models

No-arbitrage up to random horizon for quasi-left-continuous models

This paper studies the impact, on no-arbitrage conditions, of stopping the price process at an arbitrary random time. As price processes, we consider the class of quasi-left-continuous semimartingales, i.e., semimartingales that do not jump at predictable stopping times. We focus on the condition of no unbounded profit with bounded risk (called NUPBR), also known in the literature as no arbitrage of the first kind. The first principal result describes all the pairs of quasi-left-continuous market models and random times for which the resulting stopped model fulfils NUPBR. Furthermore, for a subclass of quasi-left-continuous local martingales, we construct explicitly martingale deflators, i.e., strictly positive local martingales whose product with the price process stopped at a random time is a local martingale. The second principal result characterises the random times that preserve NUPBR under stopping for any quasi-left-continuous model. The analysis carried out in the paper is based on new stochastic developments in the theory of progressive enlargements of filtrations

No-arbitrage under a class of honest times

This paper quantifies the interplay between the no-arbitrage notion of no-unbounded-profit-with-bounded-risk (NUPBR hereafter) and additional progressiveinformation generated by a randomtime. This study complements the one of Aksamit et al. in which the authors have studied similar topics for the case of stopping at the randomtime instead, while herein we deal with the part after the occurrence of the randomtime. Given that all the literature, up to our knowledge, proves that NUPBR is always violated after honest times that avoid stopping times in a continuous filtration, herein we propose a new class of honest times for which NUPBR can be preserved for some models. For these honest times, we obtain two principal results. The first result characterizes the pairs of initial market and honest time for which the resulting model preserves NUPBR, while the second result characterizes honest times that do not affect NUPBR of any quasi-left-continuous model (i.e., model in which the assets’ price process has no predictable jump times). Furthermore, we construct explicitly local martingale deflators for a large class of models

No-arbitrage up to random horizon for quasi-left-continuous models

This paper studies the impact, on no-arbitrage conditions, of stopping the price process at an arbitrary random time. As price processes, we consider the class of quasi-left-continuous semimartingales, i.e., semimartingales that do not jump at predictable stopping times. We focus on the condition of no unbounded profit with bounded risk (called NUPBR), also known in the literature as no arbitrage of the first kind. The first principal result describes all the pairs of quasi-left-continuous market models and random times for which the resulting stopped model fulfils NUPBR. Furthermore, for a subclass of quasi-left-continuous local martingales, we construct explicitly martingale deflators, i.e., strictly positive local martingales whose product with the price process stopped at a random time is a local martingale. The second principal result characterises the random times that preserve NUPBR under stopping for any quasi-left-continuous model. The analysis carried out in the paper is based on new stochastic developments in the theory of progressive enlargements of filtrations

Excess-of-loss reinsurance for a company with debt liability and constraints on risk reduction

We consider a problem of risk control and dividend optimization for a financial corporation facing a constant liability payment. More specifically we investigate the case of excess-of-loss reinsurance for an insurance company. In this scheme the insurance company diverts a part of its premium stream to another company, the reinsurer, in exchange for an obligation to pick up that amount of each claim which exceeds a certain level a. The objective of the insurer is to maximize the expected present value of total future dividend pay-outs. We consider cases when there is restriction on the rate of dividend pay-outs and when there is no restriction. In both cases we describe explicitly the optimal return function as well as the optimal policy.