Embedding laws in diffusions by functions of time

DOI10.1214/14-AOP941MaRDI QIDQ888534zbMATH OpenFDO

Authors Alexander Matthew Gordon Cox, Goran Peskir

Publication date 30 October 2015

Published in The Annals of Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1201.5321, https://projecteuclid.org/euclid.aop/1441792291

zbMATH Keywords

Markov processweak convergenceBrownian motiondiffusion processoptimal stopping timeSkorokhod embeddingHelly's selection theoremreversed barrierLévy metric

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Diffusion processes (60J60) Brownian motion (60J65) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: We present a constructive probabilistic proof of the fact that if $B=(B_t{)}_{tge0}$ is standard Brownian motion started at $0$, and $mu$ is a given probability measure on $mathbbR$ such that $mu(0)=0$, then there exists a unique left-continuous increasing function $b:(0,infty)ightarrowmathbbRcup+infty$ and a unique left-continuous decreasing function $c:(0,infty)ightarrowmathbbRcup-infty$ such that $B$ stopped at $$ or $$ has the law $mu$. The method of proof relies upon weak convergence arguments arising from Helly's selection theorem and makes use of the L'{e}vy metric which appears to be novel in the context of embedding theorems. We show that $a{u}_{b,c}$ is minimal in the sense of Monroe so that the stopped process $B^{a{u}_{b,c}}=(B_{twedgea{u}_{b,c}}{)}_{tge0}$ satisfies natural uniform integrability conditions expressed in terms of $mu$. We also show that $a{u}_{b,c}$ has the smallest truncated expectation among all stopping times that embed $mu$ into $B$. The main results extend from standard Brownian motion to all recurrent diffusion processes on the real line.

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Cited in

(20)

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• Discretisation and duality of optimal Skorokhod embedding problems
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• Stopping spikes, continuation bays and other features of optimal stopping with finite-time horizon
• Optimal execution with multiplicative price impact and incomplete information on the return
• The Azéma-Yor embedding in non-singular diffusions.
• Embedding of Walsh Brownian motion
• A free boundary characterisation of the root barrier for Markov processes
• Martingale inequalities for the maximum via pathwise arguments
• Root's barrier, viscosity solutions of obstacle problems and reflected FBSDEs
• A counterexample to the Cantelli conjecture through the Skorokhod embedding problem
• A Dynkin game on assets with incomplete information on the return
• scientific article; zbMATH DE number 4044869 (Why is no real title available?)
• Integral equations for Rost's reversed barriers: existence and uniqueness results
• Optimal entry decision of unemployment insurance under partial information
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• Optimal transport and Skorokhod embedding
• Continuity of the optimal stopping boundary for two-dimensional diffusions
• Robust hedging of options on a leveraged exchange traded fund

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