arXiv subjects

Andi Bodnariu

Publications and source records attributed to Andi Bodnariu.

4 recordsLinked to original sources

arXiv2026

Outrunning the Omega Clock: A Singular Control Problem for Dividend Optimisation with Ruin and Time-in-Distress Default

This paper extends the classical dividend problem by incorporating a novel, path-dependent mechanism of firm default. In the traditional framework, ruin occurs when the surplus process first reaches zero. In contrast, default in our model may also arise when the surplus spends an excessive amount of time below a distress threshold, even without ever hitting zero. This occupation-time-based default criterion captures financial distress more realistically, as prolonged periods of low liquidity or capitalisation may trigger regulatory intervention or operational failure. The resulting optimisation problem is formulated as a new singular stochastic control problem with discontinuous state-dependent discounting and killing. We provide a complete analytical solution via a bespoke sequential guess-and-verify method and identify three distinct classes of optimal dividend strategies corresponding to different parameter regimes of the dual-ruin structure. Notably, for certain distress thresholds, the optimal policy features disconnected action and inaction regions. We further show that, unlike in the classical dividend problem, higher effective discounting induced by occupation time below a distress level can lead to delayed, rather than earlier, dividend payments.

math.OC↗

arXiv2025

Time-inconsistent singular control problems: Reflection and Absolutely continuous controls with exploding rates

We study a time-inconsistent singular stochastic control problem for a general one-dimensional diffusion, where time-inconsistency arises from a non-exponential discount function. To address this, we adopt a game-theoretic framework and study the optimality of a novel class of controls that encompasses both traditional singular controls -- responsible for generating multiple jumps and reflective boundaries (strong thresholds) -- and new mild threshold control strategies, which allow for the explosion of the control rate in absolutely continuous controls, thereby creating an inaccessible boundary (mild threshold) for the controlled process. We establish a general verification theorem, formulated in terms of a system of variational inequalities, that provides both necessary and sufficient conditions for equilibrium within the proposed class of control strategies and their combinations. To demonstrate the applicability of our theoretical results, we examine case studies in inventory management. We show that for certain parameter values, the problem admits a strong threshold control equilibrium in the form of Skorokhod reflection. In contrast, for other parameter values, we prove that no such equilibrium exists, necessitating the use of our extended control class. In the latter case, we explicitly construct an equilibrium using a mild threshold control strategy with a discontinuous, increasing, and exploding rate that induces an inaccessible boundary for the optimally controlled process, marking the first example of a singular control problem with such a solution structure.

math.OC↗

arXiv2023

A controller-stopper-game with hidden controller type

We consider a continuous time stochastic dynamic game between a stopper (Player $1$, the \textit{owner} of an asset yielding an income) and a controller (Player $2$, the \textit{manager} of the asset), where the manager is either effective or non-effective. An effective manager can choose to exert low or high effort which corresponds to a high or a low positive drift for the accumulated income of the owner with random noise in terms of Brownian motion; where high effort comes at a cost for the manager. The manager earns a salary until the game is stopped by the owner, after which also no income is earned. A non-effective manager cannot act but still receives a salary. For this game we study (Nash) equilibria using stochastic filtering methods; in particular, in equilibrium the manager controls the learning rate (regarding the manager type) of the owner. First, we consider a strong formulation of the game which requires restrictive assumptions for the admissible controls, and find an equilibrium of (double) threshold type. Second, we consider a weak formulation, where a general set of admissible controls is considered. We show that the threshold equilibrium of the strong formulation is also an equilibrium in the weak formulation.

math.PR↗

arXiv2022

Local time pushed mixed stopping and smooth fit for time-inconsistent stopping problems

We consider the game-theoretic approach to time-inconsistent stopping of a one-dimensional diffusion where the time-inconsistency is due to the presence of a non-exponential (weighted) discount function. In particular, we study (weak) equilibria for this problem in a novel class of mixed (i.e., randomized) stopping times based on a local time construction of the stopping intensity. For a general formulation of the problem we provide a verification theorem giving sufficient conditions for mixed (and pure) equilibria in terms of a set of variational inequalities, including a smooth fit condition. We apply the theory to prove the existence of (mixed) equilibria in a recently studied real options problem in which no pure equilibria exist.

math.PR↗