Mixed Equilibrium Solution of Time-Inconsistent Stochastic Linear-Quadratic Problem

DOI10.1137/18M1177068zbMATH Open1407.93433arXiv1802.03032OpenAlexW2914580576WikidataQ128427098 ScholiaQ128427098MaRDI QIDQ4622012FDOQ4622012

Miroslav Krstic, Yuan-Hua Ni, Jifeng Zhang, Xun Li

Publication date: 8 February 2019

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

Abstract: In this paper, we propose a novel equilibrium solution notion for the time-inconsistent stochastic linear-quadratic optimal control problem. This notion is called the mixed equilibrium solution, which consists of two parts: a pure-feedback-strategy part and an open-loop-control part. When the pure-feedback-strategy part is zero or the open-loop-control part does not depend on the initial state, the mixed equilibrium solution reduces to the open-loop equilibrium control and the feedback equilibrium strategy, respectively. Using a maximum-principle-like methodology with forward-backward stochastic difference equations, a necessary and sufficient condition is established to characterize the existence of a mixed equilibrium solution. Then, by decoupling the forward-backward stochastic difference equations, three sets of difference equations, which together portray the existence of a mixed equilibrium solution, are obtained. Moreover, the case with a fixed time-state initial pair and the case with all the initial pairs are separately investigated. Furthermore, an example is constructed to show that the mixed equilibrium solution exists for all the initial pairs, although neither the open-loop equilibrium control nor the feedback equilibrium strategy exists for some initial pairs.

Full work available at URL: https://arxiv.org/abs/1802.03032

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zbMATH Keywords

time inconsistencyequilibrium solutionmean-field optimal controlstochastic linear-quadratic optimal controlforward-backward stochastic difference equation

Mathematics Subject Classification ID

Linear-quadratic optimal control problems (49N10) Feedback control (93B52) Discrete-time control/observation systems (93C55) Optimal stochastic control (93E20) Stochastic difference equations (39A50)

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Cited In (11)

• Equilibrium controls in time inconsistent stochastic linear quadratic problems
• A solution method for heterogeneity involving present bias
• A robust time‐inconsistent linear‐quadratic problem
• Near Optimality of Stochastic Control for Singularly Perturbed McKean--Vlasov Systems
• Closed-Loop Equilibrium for Time-Inconsistent McKean--Vlasov Controlled Problem
• Better than optimal mean-variance portfolio policy in multi-period asset-liability management problem
• A class of non-zero-sum stochastic differential games between two mean–variance insurers under stochastic volatility
• Maximum principle for general partial information nonzero sum stochastic differential games and applications
• Time-inconsistent stochastic LQ problem with regime switching
• Time-Inconsistent Linear Quadratic Optimal Control Problems for Stochastic Evolution Equations
• A Nash-Type Fictitious Game Framework to Time-Inconsistent Stochastic Control Problems

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