A note on applications of stochastic ordering to control problems in insurance and finance

DOI10.1080/17442508.2013.778861zbMATH Open1314.60104arXiv1210.3800OpenAlexW2020775070MaRDI QIDQ2875271FDOQ2875271

Erhan Bayraktar, Nicole Bäuerle

Publication date: 14 August 2014

Published in: Stochastics (Search for Journal in Brave)

Abstract: We consider a controlled diffusion process $(X_t{)}_{tge0}$ where the controller is allowed to choose the drift $m{u}_t$ and the volatility $sigm{a}_t$ from a set $K(x)subsetRimes(0,infty)$ when $X_t=x$. By choosing the largest $fracmusigm{a}^2$ at every point in time an extremal process is constructed which is under suitable time changes stochastically larger than any other admissible process. This observation immediately leads to a very simple solution of problems where ruin or hitting probabilities have to be minimized. Under further conditions this extremal process also minimizes "drawdown" probabilities.

Full work available at URL: https://arxiv.org/abs/1210.3800

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zbMATH Keywords

stochastic orderingextremal processruin problemcontrolled diffusion process

Mathematics Subject Classification ID

Extreme value theory; extremal stochastic processes (60G70) Inequalities; stochastic orderings (60E15) Diffusion processes (60J60) Applications of stochastic analysis (to PDEs, etc.) (60H30) Optimal stochastic control (93E20)

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Cited In (14)

• Optimal reinsurance to minimize the probability of drawdown under the mean-variance premium principle
• Stochastic orderings of multivariate elliptical distributions
• Optimisation of drawdowns by generalised reinsurance in the classical risk model
• Generalized location-scale mixtures of elliptical distributions: Definitions and stochastic comparisons
• Optimal reinsurance and investment problems to minimize the probability of drawdown
• Recombining Tree Approximations for Optimal Stopping for Diffusions
• Gambling for resurrection and the heat equation on a triangle
• A pair of optimal reinsurance-investment strategies in the two-sided exit framework
• Stochastic orderings with respect to a capacity and an application to a financial optimization problem
• Optimal proportional reinsurance to minimize the probability of drawdown under thinning-dependence structure
• Title not available (Why is that?)
• Nash equilibrium premium strategies for push-pull competition in a frictional non-life insurance market
• On minimizing drawdown risks of lifetime investments
• ORDERING RESULTS ON EXTREMES OF EXPONENTIATED LOCATION-SCALE MODELS

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