A note on costs minimization with stochastic target constraints

DOI10.1214/20-ECP295MaRDI QIDQ2183107zbMATH OpenFDO

Authors Yan Dolinsky, Benjamin Gottesman, Ori Gurel-Gurevich

Publication date 26 May 2020

Published in Electronic Communications in Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1907.02429, https://projecteuclid.org/euclid.ecp/1580353229

zbMATH Keywords

backward stochastic differential equationsoptimal stochastic control

Mathematics Subject Classification ID

Existence theories for optimal control problems involving ordinary differential equations (49J15) Existence of optimal solutions to problems involving randomness (49J55) Optimality conditions for problems involving randomness (49K45) Applications of stochastic analysis (to PDEs, etc.) (60H30) Optimal stochastic control (93E20)

Abstract: We study the minimization of the expected costs under stochastic constraint at the terminal time. The first and the main result says that for a power type of costs, the value function is the minimal positive solution of a second order semi--linear ordinary differential equation (ODE). Moreover, we establish the optimal control. In the second example we show that the case of exponential costs leads to a trivial optimal control.

Review text

The authors consider the following stochastic control problem \[ v(T,x,c):= \inf_{u \in U(T,x,c)} \mathbb{E} \left( \int_0^T |u_t|^p dt \right) \] for a given \(p > 1\) for some suitable set \(U\). Their main result is to relate the function \(v\) with the solution of the following ODE \[ h(y) g^{}(y) + (p-1) (g(y) - g^{\frac{p}{p-1}}(y)) = 0, \quad y \in (0,1) \] for some given function \(h(\cdot)\).

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Cites work

• A control problem with fuel constraint and Dawson-Watanabe superprocesses
• A non-Markovian liquidation problem and backward SPDEs with singular terminal conditions
• Backward stochastic differential equations with singular terminal condition
• BSDEs with Singular Terminal Condition and a Control Problem with Constraints
• Hedging with temporary price impact
• Linear quadratic stochastic control problems with stochastic terminal constraint
• Minimal supersolutions for BSDEs with singular terminal condition and application to optimal position targeting
• Optimal position targeting via decoupling fields
• Optimal position targeting with stochastic linear-quadratic costs
• Smooth solutions to portfolio liquidation problems under price-sensitive market impact

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(3)

• Optimal trade execution in an order book model with stochastic liquidity parameters
• Optimal position targeting with stochastic linear-quadratic costs
• Reducing Obizhaeva-Wang-type trade execution problems to LQ stochastic control problems

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