Quantile hedging and optimal control under stochastic target constraints
Elie, Romuald (2009), Quantile hedging and optimal control under stochastic target constraints, Istanbul Workshop on Mathematical Finance, 2009-05, Istanbul, Turquie
TypeCommunication / Conférence
Titre du colloqueIstanbul Workshop on Mathematical Finance
Date du colloque2009-05
Ville du colloqueIstanbul
Pays du colloqueTurquie
MétadonnéesAfficher la notice complète
Résumé (EN)We consider the problem of ﬁnding the minimal initial data of a controlled process which guarantees to reach a controlled target with a given probability of success or, more generally, with a given level of expected loss. By suitably increasing the state space and the controls, we show that this problem can be converted into a stochastic target problem, i.e. ﬁnd the minimal initial data of a controlled process which guarantees to reach a controlled target with probability one. Unlike the existing literature on stochastic target problems, our increased controls are valued in an unbounded set. In this paper, we provide a new derivation of the dynamic programming equation for general stochastic target problems with unbounded controls, together with the appropriate boundary conditions. These results are applied to the problem of quantile hedging in ﬁnancial mathematics, and are shown to recover the explicit solution of Follmer and Leukert. We then consider the problem of miximizing a utility function under this type of quantile constraint. The previous study allows to characterize the domain in which the value fuction lies and we provide an Hamilton-Jacobi-Bellman representation of the associated value function. Contrary to standard state constraint problems, the domain is not given a-priori and we do not need to impose conditions on its boundary.
Mots-clésQuantile Constraint; Dynamic Programming Equation; Stochastic Target Problem
Affichage des éléments liés par titre et auteur.
Generalized stochastic target problems for pricing and partial hedging under loss constraints - Application in optimal book liquidation Bouchard, Bruno; Dang, Ngoc Minh (2013) Article accepté pour publication ou publié