Stochastic target games and dynamic programming via regularized viscosity solutions
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Publication:2800366
Abstract: We study a class of stochastic target games where one player tries to find a strategy such that the state process almost-surely reaches a given target, no matter which action is chosen by the opponent. Our main result is a geometric dynamic programming principle which allows us to characterize the value function as the viscosity solution of a non-linear partial differential equation. Because abstract mea-surable selection arguments cannot be used in this context, the main obstacle is the construction of measurable almost-optimal strategies. We propose a novel approach where smooth supersolutions are used to define almost-optimal strategies of Markovian type, similarly as in ver-ification arguments for classical solutions of Hamilton--Jacobi--Bellman equations. The smooth supersolutions are constructed by an exten-sion of Krylov's method of shaken coefficients. We apply our results to a problem of option pricing under model uncertainty with different interest rates for borrowing and lending.
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Cited in
(13)- On the controller-stopper problems with controlled jumps
- Model-Independent Bounds for Asian Options: A Dynamic Programming Approach
- On a Class of Path-Dependent Singular Stochastic Control Problems
- Stochastic Target Problems, Dynamic Programming, and Viscosity Solutions
- Stochastic control for a class of nonlinear kernels and applications
- Stochastic Perron for stochastic target games
- Hedging of covered options with linear market impact and gamma constraint
- Asymptotic Perron's method and simple Markov strategies in stochastic games and control
- Stochastic Perron for stochastic target problems
- Second-order stochastic target problems with generalized market impact
- Zero-sum path-dependent stochastic differential games in weak formulation
- Dynamic programming principle for stochastic recursive optimal control problem driven by a \(G\)-Brownian motion
- Stochastic target games with controlled loss
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