Stochastic Perron's method for the probability of lifetime ruin problem under transaction costs

DOI10.1137/140967052zbMATH Open1343.93094arXiv1404.7406OpenAlexW3122516375MaRDI QIDQ2810052FDOQ2810052

Authors: Erhan Bayraktar, Yuchong Zhang 

Publication date: 31 May 2016

Published in: SIAM Journal on Control and Optimization (Search for Journal in Brave)

Abstract: We apply stochastic Perron's method to a singular control problem where an individual targets at a given consumption rate, invests in a risky financial market in which trading is subject to proportional transaction costs, and seeks to minimize her probability of lifetime ruin. Without relying on the dynamic programming principle (DPP), we characterize the value function as the unique viscosity solution of an associated Hamilton-Jacobi-Bellman (HJB) variational inequality. We also provide a complete proof of the comparison principle which is the main assumption of stochastic Perron's method.

Full work available at URL: https://arxiv.org/abs/1404.7406

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zbMATH Keywords

comparison principletransaction costsviscosity solutionssingular controlstochastic Perron methodHamilton-Jacobi-Bellman variational inequalityprobability of lifetime ruin

Mathematics Subject Classification ID

Viscosity solutions to PDEs (35D40) PDEs in connection with control and optimization (35Q93) Variational inequalities (49J40) Existence of optimal solutions to problems involving randomness (49J55) Dynamic programming in optimal control and differential games (49L20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Applications of stochastic analysis (to PDEs, etc.) (60H30) Optimal stochastic control (93E20) Martingales and classical analysis (60G46)

Cited In (17)

• On the controller-stopper problems with controlled jumps
• Lifetime ruin under high-water mark fees and drift uncertainty
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• A general verification result for stochastic impulse control problems
• Stochastic Perron for stochastic target games
• Optimal entry and consumption under habit formation
• Regular finite fuel stochastic control problems with exit time
• Solvability of the Nonlinear Dirichlet Problem with Integro-differential Operators
• A simple and nearly optimal investment strategy to minimize the probability of lifetime ruin
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• On dynamic pricing under model uncertainty
• Proving regularity of the minimal probability of ruin via a game of stopping and control
• Minimizing the probability of lifetime exponential Parisian ruin
• Robust feedback switching control: dynamic programming and viscosity solutions
• Finite-horizon optimal investment with transaction costs: construction of the optimal strategies
• Minimizing the discounted probability of exponential Parisian ruin via reinsurance

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