Small time path behavior of double stochastic integrals and applications to stochastic control

DOI10.1214/105051605000000557MaRDI QIDQ2496497zbMATH OpenOpenAlexWikidataFDO

Authors Patrick Cheridito, H. Mete Soner, Nizar Touzi

Publication date 10 July 2006

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

Full work available at URL https://arxiv.org/abs/math/0602453

zbMATH Keywords

stochastic controllaw of the iterated logarithmhedging under gamma constraints

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Sample path properties (60G17) Stochastic integrals (60H05) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Abstract: We study the small time path behavior of double stochastic integrals of the form $in{t}_0^t(in{t}_0^{r}b(u)dW(u){)}^{T}dW(r)$, where $W$ is a $d$-dimensional Brownian motion and $b$ is an integrable progressively measurable stochastic process taking values in the set of $dimesd$-matrices. We prove a law of the iterated logarithm that holds for all bounded progressively measurable $b$ and give additional results under continuity assumptions on $b$. As an application, we discuss a stochastic control problem that arises in the study of the super-replication of a contingent claim under gamma constraints.

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Cites work

• scientific article; zbMATH DE number 1245556 (Why is no real title available?)
• Dynamic programming for stochastic target problems and geometric flows
• Hedging and Portfolio Optimization in Financial Markets with a Large Trader
• On the possibility of hedging options in the presence of transaction costs
• Stochastic Target Problems, Dynamic Programming, and Viscosity Solutions
• Superreplication Under Gamma Constraints
• The multi-dimensional super-replication problem under gamma constraints

Cited in

(6)

• Option hedging for small investors under liquidity costs
• Survey on normal distributions, central limit theorem, Brownian motion and the related stochastic calculus under sublinear expectations
• Stochastic invariance for hybrid stochastic differential equation with non-Lipschitz coefficients
• Explicit deferred correction methods for second-order forward backward stochastic differential equations
• Stochastic invariance of closed sets with non-Lipschitz coefficients
• The multi-dimensional super-replication problem under gamma constraints

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