Predictable forward performance processes in complete markets

DOI10.3934/PUQR.2023007MaRDI QIDQ6090952zbMATHFDO

Authors Bahman Angoshtari

Publication date 21 November 2023

Published in Probability, Uncertainty and Quantitative Risk (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2206.03608

zbMATH Keywords

Fourier transformdeconvolutionintegral equationcomplete marketforward performance processescompletely monotonic inverse marginalpredictable preference

Mathematics Subject Classification ID

Portfolio theory (91G10) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Abstract: We establish existence of Predictable Forward Performance Processes (PFPPs) in complete markets, which has been previously shown only in the binomial setting. Our market model can be a discrete-time or a continuous-time model, and the investment horizon can be finite or infinite. We show that the main step in construction of PFPPs is solving a one-period problem involving an integral equation, which is the counterpart of the functional equation found in the binomial case. Although this integral equation has been partially studied in the existing literature, we provide a new solution method using the Fourier transform for tempered distributions. We also provide closed-form solutions for PFPPs with inverse marginal functions that are completely monotonic and establish uniqueness of PFPPs within this class. We apply our results to two special cases. The first one is the binomial market and is included to relate our work to the existing literature. The second example considers a generalized Black-Scholes model which, to the best of our knowledge, is a new result.

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Cites work

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Cited in

(9)

• Predictable forward performance processes: Infrequent evaluation and applications to human‐machine interactions
• \(G\)-forward performance process and representation of homothetic case via ergodic quadratic \(G\)-BSDE
• Forward robust portfolio selection: the binomial case
• Optimal investment and consumption with forward preferences and uncertain parameters
• Forward Prices in Markets Driven by Continuous-time Autoregressive Processes
• VALUING THE FUTURES-MARKET PERFORMANCE GUARANTEE
• Power Forward Performance in Semimartingale Markets with Stochastic Integrated Factors
• Optimal liquidation with dynamic parameter updating: a forward approach
• Rank-dependent predictable forward performance processes

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