Related papers: Equilibrium Defaultable Corporate Debt and Investm…
In this paper, we attempt to introduce the Bellman principle for a discrete time multi-period mean-variance model. Based on this new take on the Bellman principle, we obtain a dynamic time-consistent optimal strategy and related efficient…
A problem of optimal debt management is modeled as a noncooperative game between a borrower and a pool of lenders, in infinite time horizon with exponential discount. The yearly income of the borrower is governed by a stochastic process.…
We study perpetual American option pricing problems in an extension of the Black-Merton-Scholes model in which the dividend and volatility rates of the underlying risky asset depend on the running values of its maximum and maximum drawdown.…
We study a finite-horizon dynamic wholesale-price contract between a manufacturer and a retailer, both of whom observe only sales, rather than the true demand. When the retailer stocks out, unmet demand is unobserved, so both parties update…
Markov games with coupling constraints model constrained dynamical decision-making involving self-interested agents, where the feasibility of an individual agent's strategy depends on the joint strategies of the others. Such games arise in…
Time-consistency is an essential requirement in risk sensitive optimal control problems to make rational decisions. An optimization problem is time consistent if its solution policy does not depend on the time sequence of solving the…
This short paper proposes a simple general equilibrium approach within a Markov-switching regime to explain how asymmetric information between lenders and speculators may lead to currency crises. The paper concludes by providing necessary…
We consider a dynamic version of sender-receiver games, where the sequence of states follows an irreducible Markov chain observed by the sender. Under mild assumptions, we provide a simple characterization of the limit set of equilibrium…
An extension of the idea of state tameness is presented in a dynamic framework. The proposed model for financial markets is rich enough to provide analytical tools that are mostly obtained in models that arise as the solution of SDEs with…
We consider an equity market subject to risk from both unhedgeable shocks and default. The novelty of our work is that to partially offset default risk, investors may dynamically trade in a credit default swap (CDS) market. Assuming…
We study incentive design when multiple principals simultaneously design mechanisms for their respective teams in environments with strategic spillovers. In this environment, each principal's set of incentive-compatible mechanisms--those…
We establish existence and uniqueness for a wide class of Markovian systems of backward stochastic differential equations (BSDE) with quadratic nonlinearities. This class is characterized by an abstract structural assumption on the…
New weak and strong existence and weak and strong uniqueness results for multi-dimensional stochastic McKean--Vlasov equations are established under relaxed regularity conditions. Weak existence is a variation of Krylov's weak existence for…
This paper studies the finite horizon portfolio management by optimally tracking a ratcheting capital benchmark process. It is assumed that the fund manager can dynamically inject capital into the portfolio account such that the total…
Each period, two players bargain over a unit of surplus. Each player chooses between remaining flexible and committing to a take-it-or-leave-it offer at a cost. If players' committed demands are incompatible, then the current-period surplus…
Choosing a portfolio of risky assets over time that maximizes the expected return at the same time as it minimizes portfolio risk is a classical problem in Mathematical Finance and is referred to as the dynamic Markowitz problem (when the…
We present an actor-critic-type reinforcement learning algorithm for solving the problem of hedging a portfolio of financial instruments such as securities and over-the-counter derivatives using purely historic data. The key characteristics…
This paper analyzes the equilibrium distribution of wealth in an economy where firms' productivities are subject to idiosyncratic shocks, returns on factors are determined in competitive markets, dynasties have linear consumption functions…
This paper introduces a novel stochastic framework for modelling tax evasion dynamics by extending the deterministic model of Bertotti and Modanese (2018) through the use of Piecewise Deterministic Markov Processes (PDMPs). A key limitation…
We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian…