An optimal Skorokhod embedding for diffusions

DOI10.1016/J.SPA.2004.01.003MaRDI QIDQ2485750zbMATH OpenOpenAlexFDO

Authors David Hobson, Alexander Matthew Gordon Cox

Publication date 5 August 2005

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

Full work available at URL https://arxiv.org/abs/math/0212174

zbMATH Keywords

\(H^p\)-embeddingBrownian motionEmbeddingSkorokhod problemStopping time

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Diffusion processes (60J60) Brownian motion (60J65)

Abstract: Given a Brownian motion $B_t$ and a general target law $mu$ (not necessarily centered or even integrable) we show how to construct an embedding of $mu$ in $B$. This embedding is an extension of an embedding due to Perkins, and is optimal in the sense that it simultaneously minimises the distribution of the maximum and maximises the distribution of the minimum among all embeddings of $mu$. The embedding is then applied to regular diffusions, and used to characterise the target laws for which a $H^p$-embedding may be found.

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Cited in

(14)

• Designing options given the risk: The optimal Skorokhod-embedding problem
• Discretisation and duality of optimal Skorokhod embedding problems
• Optimal Skorokhod embedding given full marginals and Azéma-Yor peacocks
• Stopping with expectation constraints: 3 points suffice
• On joint distributions of the maximum, minimum and terminal value of a continuous uniformly integrable martingale
• Finite, integrable and bounded time embeddings for diffusions
• Skorokhod embeddings, minimality and non-centred target distributions
• Processes that can be embedded in a geometric Brownian motion
• Numerical approximation of irregular SDEs via Skorokhod embeddings
• Optimal stopping of the maximum process: a converse to the results of Peskir
• Statistical Skorohod embedding problem: optimality and asymptotic normality
• Cautious stochastic choice, optimal stopping and deliberate randomization
• An explicit solution to the Skorokhod embedding problem for functionals of excursions of Markov processes
• Integrability of solutions of the Skorokhod embedding problem for diffusions

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