Stochastic Control Problems with State Reflections Arising from Relaxed Benchmark Tracking

• 成果类型: Article; Early Access
• 署名作者: Bo, Lijun; Huang, Yijie; Yu, Xiang
• 署名单位: Xidian University; Chinese Academy of Sciences; University of Science & Technology of China, CAS; Hong Kong Polytechnic University
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2023.0265
• 发表日期: 2024
• 关键词: portfolio selection

摘要

This paper studies stochastic control problems motivated by optimal consumption with wealth benchmark tracking. The benchmark process is modeled by a combination of a geometric Brownian motion and a running maximum process, indicating its increasing trend in the long run. We consider a relaxed tracking formulation such that the wealth compensated by the injected capital always dominates the benchmark process. The stochastic control problem is to maximize the expected utility of consumption deducted by the cost of the capital injection under the dynamic floor constraint. By introducing two auxiliary state processes with reflections, an equivalent auxiliary control problem is formulated and studied, which leads to the Hamilton-Jacobi-Bellman equation with two Neumann boundary conditions. We establish the existence of a unique classical solution to the dual partial differential equation using some novel probabilistic representations involving the local time of some dual processes together with a tailor-made decompositionhomogenization technique. The proof of the verification theorem on the optimal feedback control can be carried out by some stochastic flow analysis and technical estimations of the optimal control.