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

DOI10.1214/105051605000000557zbMATH Open1099.60027arXivmath/0602453OpenAlexW3100774807WikidataQ57635940 ScholiaQ57635940MaRDI QIDQ2496497FDOQ2496497

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)

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.

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

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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)

Cites Work

• On the possibility of hedging options in the presence of transaction costs
• Title not available (Why is that?)
• Dynamic programming for stochastic target problems and geometric flows
• Superreplication Under Gamma Constraints
• Hedging and Portfolio Optimization in Financial Markets with a Large Trader
• Stochastic Target Problems, Dynamic Programming, and Viscosity Solutions
• 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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