A stochastic target problem for branching diffusion processes

DOI10.1016/J.SPA.2023.104278MaRDI QIDQ6123265zbMATH OpenFDO

Authors Idris Kharroubi, Antonio Ocello

Publication date 4 March 2024

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2206.13267

zbMATH Keywords

branching diffusion processcryptocurrencies optionsdynamic programming principlefintechHamilton-Jacobi-Bellman equationstochastic target controlviscosity solution

Mathematics Subject Classification ID

Viscosity solutions to PDEs (35D40) Second-order parabolic equations (35K10) PDEs with randomness, stochastic partial differential equations (35R60) Dynamic programming in optimal control and differential games (49L20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Branching processes (Galton-Watson, birth-and-death, etc.) (60J80) Derivative securities (option pricing, hedging, etc.) (91G20)

Abstract: We consider an optimal stochastic target problem for branching diffusion processes. This problem consists in finding the minimal condition for which a control allows the underlying branching process to reach a target set at a finite terminal time for each of its branches. This problem is motivated by an example from fintech where we look for the super-replication price of options on blockchain based cryptocurrencies. We first state a dynamic programming principle for the value function of the stochastic target problem. We then show that the value function can be reduced to a new function with a finite dimensional argument by a so called branching property. Under wide conditions, this last function is shown to be the unique viscosity solution to an HJB variational inequality.

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Cited in

(1)

• Controlled superprocesses and HJB equation in the space of finite measures

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