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Stochastic target games with controlled loss

Author

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  • Bruno Bouchard
  • Ludovic Moreau
  • Marcel Nutz

Abstract

We study a stochastic game where one player tries to find a strategy such that the state process reaches a target of controlled-loss-type, no matter which action is chosen by the other player. We provide, in a general setup, a relaxed geometric dynamic programming principle for this problem and derive, for the case of a controlled SDE, the corresponding dynamic programming equation in the sense of viscosity solutions. As an example, we consider a problem of partial hedging under Knightian uncertainty.

Suggested Citation

  • Bruno Bouchard & Ludovic Moreau & Marcel Nutz, 2012. "Stochastic target games with controlled loss," Papers 1206.6325, arXiv.org, revised Apr 2014.
    • Handle: RePEc:arx:papers:1206.6325
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    File URL: http://arxiv.org/pdf/1206.6325
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    References listed on IDEAS

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    1. Hans FÃllmer & Peter Leukert, 1999. "Quantile hedging," Finance and Stochastics, Springer, vol. 3(3), pages 251-273.
    2. Bruno Bouchard & Marcel Nutz, 2011. "Weak Dynamic Programming for Generalized State Constraints," Papers 1105.0745, arXiv.org, revised Oct 2012.
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    Cited by:

    1. Sara Biagini & Bruno Bouchard & Constantinos Kardaras & Marcel Nutz, 2014. "Robust Fundamental Theorem for Continuous Processes," Papers 1410.4962, arXiv.org, revised Jul 2015.
    2. Thibaut Mastrolia & Dylan Possamaï, 2018. "Moral Hazard Under Ambiguity," Journal of Optimization Theory and Applications, Springer, vol. 179(2), pages 452-500, November.
    3. Dylan Possamai & Xiaolu Tan & Chao Zhou, 2015. "Stochastic control for a class of nonlinear kernels and applications," Papers 1510.08439, arXiv.org, revised Jul 2017.
    4. Hu, Mingshang & Ji, Shaolin, 2017. "Dynamic programming principle for stochastic recursive optimal control problem driven by a G-Brownian motion," Stochastic Processes and their Applications, Elsevier, vol. 127(1), pages 107-134.
    5. Sara Biagini & Bruno Bouchard & Constantinos Kardaras & Marcel Nutz, 2017. "Robust Fundamental Theorem for Continuous Processes," Post-Print hal-01076062, HAL.
    6. Bruno Bouchard & Ludovic Moreau & Mete H. Soner, 2016. "Hedging under an expected loss constraint with small transaction costs," Post-Print hal-00863562, HAL.
    7. Marcel Nutz, 2014. "Superreplication under model uncertainty in discrete time," Finance and Stochastics, Springer, vol. 18(4), pages 791-803, October.
    8. Bruno Bouchard & Marcel Nutz, 2016. "Stochastic Target Games and Dynamic Programming via Regularized Viscosity Solutions," Mathematics of Operations Research, INFORMS, vol. 41(1), pages 109-124, February.
    9. Marcel Nutz, 2013. "Superreplication under Model Uncertainty in Discrete Time," Papers 1301.3227, arXiv.org, revised Feb 2014.
    10. Ying Jiao & Olivier Klopfenstein & Peter Tankov, 2017. "Hedging under multiple risk constraints," Finance and Stochastics, Springer, vol. 21(2), pages 361-396, April.

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