Equilibrium strategies in time-inconsistent stochastic control problems with constraints: necessary conditions
Optimization and Control
2024-03-13 v3 Probability
Abstract
This paper is concerned with a time-inconsistent recursive stochastic control problems where the forward state process is constrained through an additional recursive utility system. By adapting the Ekeland variational principle, necessary conditions for equilibrium strategies are presented concerning a second-order Hamiltonian function defined by pairs of backward stochastic differential equations. At last, we consider a finite horizon state constrained investment-consumption problem with non-exponential actualisation as an example to show the application in finance. The class of constraints investigated here includes the possibility of imposing a risk bound on the terminal value of the wealth process.
Cite
@article{arxiv.2105.01473,
title = {Equilibrium strategies in time-inconsistent stochastic control problems with constraints: necessary conditions},
author = {Elisa Mastrogiacomo and Marco Tarsia},
journal= {arXiv preprint arXiv:2105.01473},
year = {2024}
}