Predictable forward performance processes in complete markets

DOI10.3934/PUQR.2023007zbMATH Open1530.91520arXiv2206.03608MaRDI QIDQ6090952FDOQ6090952

Authors: Bahman Angoshtari 

Publication date: 21 November 2023

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

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.

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)

Cites Work

• Convex Analysis
• Title not available (Why is that?)
• Portfolio choice under dynamic investment performance criteria
• INITIAL INVESTMENT CHOICE AND OPTIMAL FUTURE ALLOCATIONS UNDER TIME-MONOTONE PERFORMANCE CRITERIA
• Portfolio choice under space-time monotone performance criteria
• Evolution of the Arrow-Pratt measure of risk-tolerance for predictable forward utility processes
• Predictable forward performance processes: the binomial case
• Black's inverse investment problem and forward criteria with consumption
• Forward rank‐dependent performance criteria: Time‐consistent investment under probability distortion

Cited In (8)

• VALUING THE FUTURES-MARKET PERFORMANCE GUARANTEE
• Predictable forward performance processes: Infrequent evaluation and applications to human‐machine interactions
• Optimal liquidation with dynamic parameter updating: a forward approach
• Rank-dependent predictable forward performance processes
• Forward Prices in Markets Driven by Continuous-time Autoregressive Processes
• \(G\)-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

This page was built for publication: Predictable forward performance processes in complete markets

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6090952)