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We develop a tractable equilibrium model for price formation in intraday electricity markets in the presence of intermittent renewable generation. Using stochastic control theory, we identify the optimal strategies of agents with market…
We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…
The paper [12] examines a concept of equilibrium policies instead of optimal controls in stochastic optimization to analyze a mean-variance portfolio selection problem. We follow the same approach in order to investigate the Merton…
This paper studies a discrete-time version of the Lucas-Uzawa endogenous growth model with physical and human capital in the presence of externalities. Existence of an optimal equilibrium is proved using tools from dynamic programming with…
One approach to the analysis of stochastic fluctuations in market prices is to model characteristics of investor behaviour and the complex interactions between market participants, with the aim of extracting consequences in the aggregate.…
We introduce two simple models of forward-backward stochastic differential equations with a singular terminal condition and we explain how and why they appear naturally as models for the valuation of CO2 emission allowances. Single phase…
The main goal of this paper is an application of Bayesian inference in testing the relation between risk and return on the financial instruments. On the basis of the Intertemporal CAPM model we built a general sampling model suitable in…
We study the time-inconsistent linear quadratic optimal control problem for forward-backward stochastic differential equations with potentially indefinite cost weighting matrices for both the state and the control variables. Our research…
We introduce a stochastic approximation method for the solution of an ergodic Kullback-Leibler control problem. A Kullback-Leibler control problem is a Markov decision process on a finite state space in which the control cost is…
We study discrete-time predictable forward processes when trading times do not coincide with performance evaluation times in a binomial tree model for the financial market. The key step in the construction of these processes is to solve a…
This paper proposes methods for Bayesian inference in time-varying parameter (TVP) quantile regression (QR) models featuring conditional heteroskedasticity. I use data augmentation schemes to render the model conditionally Gaussian and…
We analyze a three-dimensional Keen--Goodwin model that couples wage--employment dynamics with Minsky-style private debt. At zero real interest the interior equilibrium is nonhyperbolic and organized by a two-dimensional center manifold…
Suboptimal methods in optimal control arise due to a limited computational budget, unknown system dynamics, or a short prediction window among other reasons. Although these methods are ubiquitous, their transient performance remains…
We are interested in stochastic control problems coming from mathematical finance and, in particular, related to model uncertainty, where the uncertainty affects both volatility and intensity. This kind of stochastic control problems is…
Option pricing formulas are derived from a non-Gaussian model of stock returns. Fluctuations are assumed to evolve according to a nonlinear Fokker-Planck equation which maximizes the Tsallis nonextensive entropy of index $q$. A generalized…
This paper focuses on the discrete-time backward stochastic linear quadratic (BSLQ) optimal control problem with nonhomogeneous system terms and cost function cross terms. The terminal constraint of such systems distinguishes it from…
This paper studies the equilibrium price of an asset that is traded in continuous time between N agents who have heterogeneous beliefs about the state process underlying the asset's payoff. We propose a tractable model where agents maximize…
This paper addresses the portfolio selection problem for nonlinear law-dependent preferences in continuous time, which inherently exhibit time inconsistency. Employing the method of stochastic maximum principle, we establish verification…
Model predictive control solves a constrained optimization problem online in order to compute an implicit closed-loop control policy. Recursive feasibility -- guaranteeing that the optimal control problem will have a solution at every time…
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…