arXiv subjects

Erik Taflin

Publications and source records attributed to Erik Taflin.

13 recordsLinked to original sources

arXiv2014

A remark on smooth solutions to a stochastic control problem with a power terminal cost function and stochastic volatilities

Incomplete financial markets are considered, defined by a multi-dimensional non-homogeneous diffusion process, being the direct sum of an Itô process (the price process), and another non-homogeneous diffusion process (the exogenous process, representing exogenous stochastic sources). The drift and the diffusion matrix of the price process are functions of the time, the price process itself and the exogenous process. In the context of such markets and for power utility functions, it is proved that the stochastic control problem consisting of optimizing the expected utility of the terminal wealth, has a classical solution (i.e. $C^{1,2}$). This result paves the way to a study of the optimal portfolio problem in incomplete forward variance stochastic volatility models, along the lines of Ref: Ekeland et al.

math.OC↗

arXiv2013

No-arbitrage of second kind in countable markets with proportional transaction costs

Motivated by applications to bond markets, we propose a multivariate framework for discrete time financial markets with proportional transaction costs and a countable infinite number of tradable assets. We show that the no-arbitrage of second kind property (NA2 in short), recently introduced by Rasonyi for finite-dimensional markets, allows us to provide a closure property for the set of attainable claims in a very natural way, under a suitable efficient friction condition. We also extend to this context the equivalence between NA2 and the existence of many (strictly) consistent price systems.

q-fin.CP↗

arXiv2013

Robust no-free lunch with vanishing risk, a continuum of assets and proportional transaction costs

We propose a continuous time model for financial markets with proportional transactions costs and a continuum of risky assets. This is motivated by bond markets in which the continuum of assets corresponds to the continuum of possible maturities. Our framework is well adapted to the study of no-arbitrage properties and related hedging problems. In particular, we extend the Fundamental Theorem of Asset Pricing of Guasoni, Rásonyi and Lépinette (2012) which concentrates on the one dimensional case. Namely, we prove that the Robust No Free Lunch with Vanishing Risk assumption is equivalent to the existence of a Strictly Consistent Price System. Interestingly, the presence of transaction costs allows a natural definition of trading strategies and avoids all the technical and un-natural restrictions due to stochastic integration that appear in bond models without friction. We restrict to the case where exchange rates are continuous in time and leave the general càdlàg case for further studies.

q-fin.PR↗

arXiv2011

Generalized integrands and bond portfolios: Pitfalls and counter examples

We construct Zero-Coupon Bond markets driven by a cylindrical Brownian motion in which the notion of generalized portfolio has important flaws: There exist bounded smooth random variables with generalized hedging portfolios for which the price of their risky part is $+\infty$ at each time. For these generalized portfolios, sequences of the prices of the risky part of approximating portfolios can be made to converges to any given extended real number in $[-\infty,\infty].$

math.PR↗

arXiv2007

In which Financial Markets do Mutual Fund Theorems hold true?

The Mutual Fund Theorem (MFT) is considered in a general semimartingale financial market S with a finite time horizon T, where agents maximize expected utility of terminal wealth. It is established that: 1) Let N be the wealth process of the numéraire portfolio (i.e. the optimal portfolio for the log utility). If any path-independent option with maturity T written on the numéraire portfolio can be replicated by trading \emph{only} in N, then the (MFT) holds true for general utility functions, and the numéraire portfolio may serve as mutual fund. This generalizes Merton's classical result on Black-Scholes markets. Conversely, under a supplementary weak completeness assumption, we show that the validity of the (MFT) for general utility functions implies the same replicability property for options on the numéraire portfolio described above. 2) If for a given class of utility functions (i.e. investors) the (MFT) holds true in all complete Brownian financial markets S, then all investors use the same utility function U, which must be of HARA type. This is a result in the spirit of the classical work by Cass and Stiglitz.

q-fin.TR↗

arXiv2007

Optimal Bond Portfolios

We aim to construct a general framework for portfolio management in continuous time, encompassing both stocks and bonds. In these lecture notes we give an overview of the state of the art of optimal bond portfolios and we re-visit main results and mathematical constructions introduced in our previous publications (Ann. Appl. Probab. \textbf{15}, 1260--1305 (2005) and Fin. Stoch. {\bf9}, 429--452 (2005)). A solution of the optimal bond portfolio problem is given for general utility functions and volatility operator processes, provided that the market price of risk process has certain Malliavin differentiability properties or is finite dimensional. The text is essentially self-contained.

math.OC↗

arXiv2007

Simple Non Linear Klein-Gordon Equations in 2 space dimensions, with long range scattering

We establish that solutions, to the most simple NLKG equations in 2 space dimensions with mass resonance, exhibits long range scattering phenomena. Modified wave operators and solutions are constructed for these equations. We also show that the modified wave operators can be chosen such that they linearize the non-linear representation of the Poincaré group defined by the NLKG.

math-ph↗

arXiv2005

A theory of bond portfolios

We introduce a bond portfolio management theory based on foundations similar to those of stock portfolio management. A general continuous-time zero-coupon market is considered. The problem of optimal portfolios of zero-coupon bonds is solved for general utility functions, under a condition of no-arbitrage in the zero-coupon market. A mutual fund theorem is proved, in the case of deterministic volatilities. Explicit expressions are given for the optimal solutions for several utility functions.

math.OC↗

arXiv2005

Bond Market Completeness and Attainable Contingent Claims

A general class, introduced in [Ekeland et al. 2003], of continuous time bond markets driven by a standard cylindrical Brownian motion $\wienerq{}{}$ in $\ell^{2},$ is considered. We prove that there always exist non-hedgeable random variables in the space $\derprod{}{0}=\cap_{p \geq 1}L^{p}$ and that $\derprod{}{0}$ has a dense subset of attainable elements, if the volatility operator is non-degenerated a.e. Such results were proved in [Björk et al. 1997] in the case of a bond market driven by finite dimensional B.m. and marked point processes. We define certain smaller spaces $\derprod{}{s},$ $s>0$ of European contingent claims, by requiring that the integrand in the martingale representation, with respect to $\wienerq{}{}$, takes values in weighted $\ell^{2}$ spaces $\ell^{s,2},$ with a power weight of degree $s.$ For all $s > 0,$ the space $\derprod{}{s}$ is dense in $\derprod{}{0}$ and is independent of the particular bond price and volatility operator processes. A simple condition in terms of $\ell^{s,2}$ norms is given on the volatility operator processes, which implies if satisfied, that every element in $\derprod{}{s}$ is attainable. In this context a related problem of optimal portfolios of zero coupon bonds is solved for general utility functions and volatility operator processes, provided that the $\ell^{2}$-valued market price of risk process has certain Malliavin differentiability properties.

math.OC↗

arXiv1999

Equity Allocation and Portfolio Selection in Insurance

A discrete time probabilistic model, for optimal equity allocation and portfolio selection, is formulated so as to apply to (at least) reinsurance. In the context of a company with several portfolios (or subsidiaries), representing both liabilities and assets, it is proved that the model has solutions respecting constraints on ROE's, ruin probabilities and market shares currently in practical use. Solutions define global and optimal risk management strategies of the company. Mathematical existence results and tools, such as the inversion of the linear part of the Euler-Lagrange equations, developed in a preceding paper in the context of a simplified model are essential for the mathematical and numerical construction of solutions of the model.

math.OC↗

arXiv1999

Equity Allocation and Portfolio Selection in Insurance: A simplified Portfolio Model

A quadratic discrete time probabilistic model, for optimal portfolio selection in (re-)insurance is studied. For positive values of underwriting levels, the expected value of the accumulated result is optimized, under constraints on its variance and on annual ROE's. Existence of a unique solution is proved and a Lagrangian formalism is given. An effective method for solving the Euler-Lagrange equations is developed. The approximate determination of the multipliers is discussed. This basic model is an important building block for more complete models.

math.OC↗

arXiv1999

Scaling transformation and probability distributions for financial time series

The price of financial assets are, since Bachelier, considered to be described by a (discrete or continuous) time sequence of random variables, i.e a stochastic process. Sharp scaling exponents or unifractal behavior of such processes has been reported in several works. In this letter we investigate the question of scaling transformation of price processes by establishing a new connexion between non-linear group theoretical methods and multifractal methods developed in mathematical physics. Using two sets of financial chronological time series, we show that the scaling transformation is a non-linear group action on the moments of the price increments. Its linear part has a spectral decomposition that puts in evidence a multifractal behavior of the price increments.

cond-mat.stat-mech↗

arXiv1995

Asymptotic completeness, global existence and the infrared problem for the Maxwell-Dirac equations

In this monograph we prove that the nonlinear Lie algebra representation given by the manifestly covariant Maxwell-Dirac (M-D) equations is integrable to a global nonlinear representation $U$ of the Poincaré group ${\cal P}_0$ on a differentiable manifold ${\cal U}_\infty$ of small initial conditions for the M-D equations. This solves, in particular, the Cauchy problem for the M-D equations, namely existence of global solutions for initial data in ${\cal U}_\infty$ at $t=0$. The existence of modified wave operators $Ω_+$ and $Ω_-$ and asymptotic completeness is proved. The asymptotic representations $U^{(ε)}_g = Ω^{-1}_ε\circ U_g \circ Ω_ε$, $ε= \pm$, $g \in {\cal P}_0$, turn out to be nonlinear. A cohomological interpretation of the results in the spirit of nonlinear representation theory and its connection to the infrared tail of the electron is given.

hep-th↗