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

DOI10.1007/S40304-015-0065-YMaRDI QIDQ746170zbMATH OpenOpenAlexFDO

Authors Olfa Draouil, B. Øksendal

Publication date 16 October 2015

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

Full work available at URL https://arxiv.org/abs/1504.02581, http://hdl.handle.net/11250/2466127

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)

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.

Recommendations

• A general maximum principle for anticipative stochastic control and applications to insider trading
• Partial observation control in an anticipating environment
• A white noise approach to optimal insider control of systems with delay
• Anticipative Stochastic Control for Lévy Processes With Application to Insider Trading
• Optimal insider control and semimartingale decompositions under enlargement of filtration

Cites work

• scientific article; zbMATH DE number 5606168 (Why is no real title available?)
• scientific article; zbMATH DE number 3278887 (Why is no real title available?)
• A general stochastic calculus approach to insider trading
• A representation theorem and a sensitivity result for functionals of jump diffusions
• Anticipative portfolio optimization
• Applied stochastic control of jump diffusions
• Forward, backward and symmetric stochastic integration
• MALLIAVIN CALCULUS AND ANTICIPATIVE ITÔ FORMULAE FOR LÉVY PROCESSES
• Malliavin calculus and optimal control of stochastic Volterra equations
• ON EXPLICIT STRONG SOLUTION OF ITÔ–SDE'S AND THE DONSKER DELTA FUNCTION OF A DIFFUSION
• On stochastic integration for volatility modulated Brownian-driven Volterra processes via white noise analysis
• On the existence and explicit representability of strong solutions of Lévy noise driven SDE's with irregular coefficients
• Optimal control of systems with noisy memory and BSDEs with Malliavin derivatives
• Optimal portfolio for an insider in a market driven by Lévy processes§
• Risk minimization in financial markets modeled by Itô-Lévy processes
• Stochastic calculus with respect to continuous finite quadratic variation processes
• Stochastic partial differential equations. A modeling, white noise functional approach
• The Donsker delta function of a Lévy process with application to chaos expansion of local time
• The generalized covariation process and Itô formula
• Using the Donsker delta function to compute hedging strategies
• White noise generalizations of the Clark-Haussmann-Ocone theorem with application to mathematical finance

Cited in

(16)

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

This page was built for publication: A Donsker delta functional approach to optimal insider control and applications to finance

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q746170)