Predictable forward performance processes: the binomial case
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Abstract: We introduce a new class of forward performance processes that are endogenous and predictable with regards to an underlying market information set and, furthermore, are updated at discrete times. We analyze in detail a binomial model whose parameters are random and updated dynamically as the market evolves. We show that the key step in the construction of the associated predictable forward performance process is to solve a single-period inverse investment problem, namely, to determine, period-by-period and conditionally on the current market information, the end-time utility function from a given initial-time value function. We reduce this inverse problem to solving a functional equation and establish conditions for the existence and uniqueness of its solutions in the class of inverse marginal functions.
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- A class of homothetic forward investment performance processes with non-zero volatility
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- Optimal investment in defined contribution pension schemes with forward utility preferences
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- \(G\)-forward performance process and representation of homothetic case via ergodic quadratic \(G\)-BSDE
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- Robust forward investment and consumption under drift and volatility uncertainties: a randomization approach
- Preference ambiguity and robustness in multistage decision making
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