Finite, integrable and bounded time embeddings for diffusions

DOI10.3150/14-BEJ598MaRDI QIDQ2348736zbMATH OpenOpenAlexFDO

Authors Stefan Ankirchner, David Hobson, Philipp Strack

Publication date 15 June 2015

Published in Bernoulli (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1306.3942, https://projecteuclid.org/euclid.bj/1429624971

zbMATH Keywords

stochastic differential equationsstopping timesweak solutionsSkorokhod embedding problemtime-homogeneous diffusion

Mathematics Subject Classification ID

Diffusion processes (60J60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: We solve the Skorokhod embedding problem (SEP) for a general time-homogeneous diffusion $X$: given a distribution $ho$, we construct a stopping time $au$ such that the stopped process $X_{au}$ has the distribution $ho$. Our solution method makes use of martingale representations (in a similar way to Bass (In Seminar on Probability XVII. Lecture Notes in Math. 784 (1983) 221-224 Springer) who solves the SEP for Brownian motion) and draws on law uniqueness of weak solutions of SDEs. Then we ask if there exist solutions of the SEP which are respectively finite almost surely, integrable or bounded, and when does our proposed construction have these properties. We provide conditions that guarantee existence of finite time solutions. Then, we fully characterize the distributions that can be embedded with integrable stopping times. Finally, we derive necessary, respectively sufficient, conditions under which there exists a bounded embedding.

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Cited in

(19)

• Processes that can be embedded in a geometric Brownian motion
• On Skorokhod embeddings and Poisson equations
• A Dubins type solution to the Skorokhod embedding problem
• Numerical approximation of irregular SDEs via Skorokhod embeddings
• On the continuity of the Root barrier
• Embedding of random vectors into continuous martingales
• Almost-Invariant and Finite-Time Coherent Sets: Directionality, Duration, and Diffusion
• From minimal embeddings to minimal diffusions
• Stopping with expectation constraints: 3 points suffice
• Skorokhod Embedding by Randomized Hitting Times
• Integrability of solutions of the Skorokhod embedding problem for diffusions
• On expected utility in optimal stopping of diffusions
• Skorokhod embeddings via stochastic flows on the space of Gaussian measures
• The Skorokhod embedding problem for inhomogeneous diffusions
• PDE methods for optimal Skorokhod embeddings
• An integral equation for Root's barrier and the generation of Brownian increments
• Model-independent pricing with insider information: a Skorokhod embedding approach
• Extending Chacon-Walsh: minimality and generalised starting distributions
• Two explicit Skorokhod embeddings for simple symmetric random walk

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