Risk minimization in financial markets modeled by Itô-Lévy processes
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maximum principlebackward stochastic differential equationsstochastic controlrisk minimizationutility optimizationstochastic differential gameItō-Lévy processes
Processes with independent increments; Lévy processes (60G51) Portfolio theory (91G10) Differential games and control (49N70) Differential games (aspects of game theory) (91A23) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Optimality conditions for problems involving randomness (49K45) Applications of optimal control and differential games (49N90) Applications of stochastic analysis (to PDEs, etc.) (60H30) Stochastic games, stochastic differential games (91A15) Stochastic models in economics (91B70) Financial applications of other theories (91G80) Optimal stochastic control (93E20) Stochastic integral equations (60H20)
Abstract: This paper is mainly a survey of recent research developments regarding methods for risk minimization in financial markets modeled by It^o-L'evy processes, but it also contains some new results on the underlying stochastic maximum principle. The concept of a convex risk measure is introduced, and two representations of such measures are given, namely: (i) the dual representation and (ii) the representation by means of backward stochastic differential equations (BSDEs) with jumps. Depending on the representation, the corresponding risk minimal portfolio problem is studied, either in the context of stochastic differential games or optimal control of forward-backward SDEs. The related concept of recursive utility is also introduced, and corresponding recursive utility maximization problems are studied. In either case the maximum principle for optimal stochastic control plays a crucial role, and in the paper we prove a version of this principle which is stronger than what was previously known. The theory is illustrated by examples, showing explicitly the risk minimizing portfolio in some cases.
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Cites work
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- scientific article; zbMATH DE number 1834045 (Why is no real title available?)
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Cited in
(28)- Malliavin calculus and optimal control of stochastic Volterra equations
- Optimal control of systems with noisy memory and BSDEs with Malliavin derivatives
- New approach to optimal control of stochastic Volterra integral equations
- An anticipative stochastic minimum principle under enlarged filtrations
- Dynamic risk measures via backward doubly stochastic Volterra integral equations with jumps
- Dynamic risk measure for BSVIE with jumps and semimartingale issues
- Risk Minimization for a Filtering Micromovement Model of Asset Price
- Forward-backward stochastic differential equation games with delay and noisy memory
- Mean-field FBSDE and optimal control
- PRICING TEMPERATURE DERIVATIVES UNDER WEATHER FORECASTS
- A Donsker delta functional approach to optimal insider control and applications to finance
- Stochastic differential games with inside information
- Explicit Representation of the Minimal Variance Portfolio in Markets Driven by Levy Processes
- Minimizing banking risk in a Lévy process setting
- Stochastic optimal control of pre-exposure prophylaxis for HIV infection for a jump model
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- Optimal insider control of stochastic partial differential equations
- Model uncertainty stochastic mean-field control
- Minimal Kullback–Leibler Divergence for Constrained Lévy–Itô Processes
- The stochastic Leibniz formula for Volterra integrals under enlarged filtrations
- Maximum principle for forward-backward control system driven by Itô-Lévy processes under initial-terminal constraints
- The optimal control of fully-coupled forward-backward doubly stochastic systems driven by Itô-Lévy processes
- A Hida-Malliavin white noise calculus approach to optimal control
- Dynamic robust duality in utility maximization
- Singular recursive utility
- Optimal control of forward-backward mean-field stochastic delayed systems
- Minimal variance hedging in multicurve interest rate modeling
- Risk minimization for an insurer with investment and reinsurance via g-expectation
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