Optimal stopping and stochastic control differential games for jump diffusions

We study stochastic differential games of jump diffusions driven by Brownian motions and compensated Poisson random measures, where one of the players can choose the stochastic control and the other player can decide when to stop the system. We prove a verification theorem for such games in terms of a Hamilton–Jacobi–Bellman variational inequality. The results are applied to study some specific examples, including optimal resource extraction in a worst-case scenario, and risk minimizing optimal portfolio and stopping.     

Solving a Hamilton–Jacobi–Bellman equation with constraints

Optimal investment strategies for an insurer with state-dependent constraints are computed via a recursive finite difference solution to the corresponding discretized Hamilton–Jacobi–Belman equation. Convergence is derived from viscosity solution arguments. For this, a comparison result is given which is similar to the result given by Azcue and Muler [Ann. Appl. Probab. 20 (2010), pp. 1253–1302].     

Quickest search over Brownian channels

In this paper we resolve an open problem proposed by Lai, Vincent Poor, Xin, and Georgiadis [Quickest search over multiple sequences. IEEE Trans. Inf. Theory 57(8) (2011), pp. 5375–5386]. Consider a sequence of Brownian motions with unknown drift equal to one or zero, which may be observed one at a time. We give a procedure for finding, as quickly as possible, a process which is a Brownian motion with non-zero drift. This original quickest search problem, in which the filtration itself is dependent on the observation strategy, is reduced to a single filtration impulse control and optimal stopping problem, which is in turn reduced to an optimal stopping problem for a reflected diffusion, which can be explicitly solved.     

Explicit solutions in one-sided optimal stopping problems for one-dimensional diffusions

Consider the optimal stopping problem of a one-dimensional diffusion with positive discount. Based on Dynkin's characterization of the value as the minimal excessive majorant of the reward and considering its Riesz representation, we give an explicit equation to find the optimal stopping threshold for problems with one-sided stopping regions, and an explicit formula for the value function of the problem. This representation also gives light on the validity of the smooth-fit (SF) principle. The results are illustrated by solving some classical problems, and also through the solution of: optimal stopping of the skew Brownian motion and optimal stopping of the sticky Brownian motion, including cases in which the SF principle fails.     

New approach to optimal control of stochastic Volterra integral equations

ABSTRACT

We study optimal control of stochastic Volterra integral equations (SVIE) with jumps by using Hida-Malliavin calculus.

• We give conditions under which there exist unique solutions of such equations.

• Then we prove both a sufficient maximum principle (a verification theorem) and a necessary maximum principle via Hida-Malliavin calculus.

• As an application we solve a problem of optimal consumption from a cash flow modelled by an SVIE.

     

Game options with gradual exercise and cancellation under proportional transaction costs

ABSTRACT

Game (Israeli) options in a multi-asset market model with proportional transaction costs are studied in the case when the buyer is allowed to exercise the option and the seller has the right to cancel the option gradually at a mixed (or randomized) stopping time, rather than instantly at an ordinary stopping time. Allowing gradual exercise and cancellation leads to increased flexibility in hedging, and hence tighter bounds on the option price as compared to the case of instantaneous exercise and cancellation. Algorithmic constructions for the bid and ask prices, and the associated superhedging strategies and optimal mixed stopping times for both exercise and cancellation are developed and illustrated. Probabilistic dual representations for bid and ask prices are also established.     

Molecular interaction energies and optimal configuration of a cubane dimer

We have studied the dependence of the binding energy of a cubane dimer on the mutual orientation of and the distance between the composing monomers employing the second‐order Møller–Plesset perturbation scheme (MP2) with the cc‐pVDZ molecular basis set. We have found that the MP2 contribution from the molecular correlations is responsible for the bound state of the cubane dimer, whereas the Hartree–Fock contribution remains anti‐bonding at all intermolecular distances. Starting with two molecules in the standard orientation and centers of mass at (0,0,0) and (0,0,d), respectively, the maximal binding energy is found at d = 5.125 Å and one of the monomers rotated by 45° about the z‐axis. This configuration implies that the hydrogen atoms belonging to different monomers tend to repel each other. The results are in agreement with experimental data on the optimal packing of cubane molecules in the solid state. © 2009 Wiley Periodicals, Inc. Int J Quantum Chem, 2010     

Optimal investment strategy for annuity contracts under the constant elasticity of variance (CEV) model

This paper focuses on the constant elasticity of variance (CEV) model for studying the optimal investment strategy before and after retirement in a defined contribution pension plan where benefits are paid under the form of annuities; annuities are supposed to be guaranteed during a certain fixed period of time. Using Legendre transform, dual theory and variable change technique, we derive the explicit solutions for the power and exponential utility functions in two different periods (before and after retirement). Each solution contains a modified factor which reflects an investor’s decision to hedge the volatility risk. In order to investigate the influence of the modified factor on the optimal strategy, we analyze the property of the modified factor. The results show that the dynamic behavior of the modified factor for the power utility mainly depends on the time and the investor’s risk aversion coefficient, whereas it only depends on the time in the exponential case.     

TIME ASYMPTOTIC BEHAVIOR OF THE BIPOLAR NAVIER-STOKES-POISSON SYSTEM

The bipolar Navier-Stokes-Poisson system （BNSP） has been used to simulate the transport of charged particles （ions and electrons for instance） under the influence of electrostatic force governed by the self-consistent Poisson equation. The optimal L^2 time convergence rate for the global classical solution is obtained for a small initial perturbation of the constant equilibrium state. It is shown that due to the electric field, the difference of the charge densities tend to the equilibrium states at the optimal rate （1 ＋ t）^-3/4 in L^2-norm, while the individual momentum of the charged particles converges at the optimal rate （1 ＋ t）^-1/4 which is slower than the rate （1 ＋ t）^-3/4 for the compressible Navier-Stokes equations （NS）. In addition, a new phenomenon on the charge transport is observed regarding the interplay between the two carriers that almost counteracts the influence of the electric field so that the total density and momentum of the two carriers converges at a faster rate （1 ＋ t）^-3/4＋ε for any small constant ε 〉 0. The above estimates reveal the essential difference between the unipolar and the bipolar Navier-Stokes-Poisson systems.     

Ricci curvature and measures

In the last thirty years three a priori very different fields of mathematics, optimal transport theory, Riemannian geometry and probability theory, have come together in a remarkable way, leading to a very substantial improvement of our understanding of what may look like a very specific question, namely the analysis of spaces whose Ricci curvature admits a lower bound. The purpose of these lectures is, starting from the classical context, to present the basics of the three fields that lead to an interesting generalisation of the concepts, and to highlight some of the most striking new developments. This article is based on the 5th Takagi Lectures that the author delivered at the University of Tokyo on October 4 and 5, 2008.