A Donsker delta functional approach to optimal insider control and applications to finance

DOI10.1007/S40304-015-0065-YzbMATH Open1341.49029arXiv1504.02581OpenAlexW1903997870MaRDI QIDQ746170FDOQ746170

Authors: Olfa Draouil, B. Øksendal 

Publication date: 16 October 2015

Published in: Communications in Mathematics and Statistics (Search for Journal in Brave)

Abstract: We study emph{optimal insider control problems}, i.e. optimal control problems of stochastic systems where the controller at any time $t$ in addition to knowledge about the history of the system up to this time, also has additional information related to a emph{future} value of the system. Since this puts the associated controlled systems outside the context of semimartingales, we apply anticipative white noise analysis, including forward integration and Hida-Malliavin calculus to study the problem. Combining this with Donsker delta functionals we transform the insider control problem into a classical (but parametrised) adapted control system, albeit with a non-classical performance functional. We establish a sufficient and a necessary maximum principle for such systems. Then we apply the results to obtain explicit solutions for some optimal insider portfolio problems in financial markets described by It^ o-L' evy processes. Finally, in the Appendix we give a brief survey of the concepts and results we need from the theory of white noise, forward integrals and Hida-Malliavin calculus.

Full work available at URL: https://arxiv.org/abs/1504.02581

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zbMATH Keywords

maximum principlebackward stochastic differential equationswhite noiseanticipative stochastic calculusDonsker delta functionalHida-Malliavin calculusoptimal insider control

Mathematics Subject Classification ID

Stochastic calculus of variations and the Malliavin calculus (60H07) Portfolio theory (91G10) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Existence of optimal solutions to problems involving randomness (49J55) Optimality conditions for problems involving randomness (49K45) Stochastic integrals (60H05) Applications of stochastic analysis (to PDEs, etc.) (60H30) White noise theory (60H40) Financial applications of other theories (91G80) Estimation and detection in stochastic control theory (93E10) Optimal stochastic control (93E20)

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Cited In (15)

• Viable insider markets
• Performance enhancement through portfolio optimization of delayed insider information: an analysis and implementation study
• Expected utility maximization for an insurer with investment and risk control under inside information
• Optimal insider control and semimartingale decompositions under enlargement of filtration
• Mean-variance asset-liability management with inside information
• Short communication: Chances for the honest in honest versus insider trading
• Robust optimal investment and reinsurance for an insurer with inside information
• Anticipative Stochastic Control for Lévy Processes With Application to Insider Trading
• Derivative of the Donsker delta functionals
• Stochastic differential games with inside information
• Optimal insider control of stochastic partial differential equations
• A simple comparison between Skorokhod \& Russo-Vallois integration for insider trading
• A white noise approach to optimal insider control of systems with delay
• A general maximum principle for anticipative stochastic control and applications to insider trading
• Portfolio optimization of credit swap under funding costs

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