Martingale Benamou-Brenier: a probabilistic perspective

DOI10.1214/20-AOP1422MaRDI QIDQ2212593zbMATH OpenOpenAlexFDO

Authors Yanyan Li

Publication date 24 November 2020

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

Full work available at URL https://arxiv.org/abs/1708.04869, https://projecteuclid.org/euclid.aop/1600826471

zbMATH Keywords

optimal transportmartingalescyclical monotonicityBrenier's theoremcausal transportBenamou-BrenierKnothe Rosenblatt couplingweak transport problemsSchrödinger problem

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Martingales with discrete parameter (60G42) Martingales with continuous parameter (60G44)

Abstract: In classical optimal transport, the contributions of Benamou-Brenier and McCann regarding the time-dependent version of the problem are cornerstones of the field and form the basis for a variety of applications in other mathematical areas. We suggest a Benamou-Brenier type formulation of the martingale transport problem for given $d$-dimensional distributions $mu,u$ in convex order. The unique solution $M^{\ast }=(M_t^{\ast }{)}_{tin[0,1]}$ of this problem turns out to be a Markov-martingale which has several notable properties: In a specific sense it mimics the movement of a Brownian particle as closely as possible subject to the conditions $M_0^{\ast }simmu,M_1^{\ast }simu$. Similar to McCann's displacement-interpolation, $M^{\ast }$ provides a time-consistent interpolation between $mu$ and $u$. For particular choices of the initial and terminal law, $M^{\ast }$ recovers archetypical martingales such as Brownian motion, geometric Brownian motion, and the Bass martingale. Furthermore, it yields a natural approximation to the local vol model and a new approach to Kellerer's theorem. This article is parallel to the work of Huesmann-Trevisan, who consider a related class of problems from a PDE-oriented perspective.

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