Mathematical Finance, Stochastic Analysis, and Machine Learning Seminar by Alain Bensoussan: Stochastic Control and Limited Commitment

Speaker:  Alain Bensoussan, University of Texas, Dallas

Title: Stochastic Control and Limited Commitment

Abstract: 

The theory of investment and growth of firms has been an important source of stochastic control problems. The issue of CEO compensation has been addressed more recently. A seminal paper has been written by H. Ai and R. Li, with a model of CEO compensation under limited commitment. It leads to a new type of stochastic control problem, where a stochastic constraint captures the limited commitment. The authors introduce a Bellman equation, with unusual boundary conditions. Many formal arguments are used in the proof, although the amount of intuition is impressive. The objective of this work is to provide a rigorous and complete theory for this Bellman equation and to solve the corresponding stochastic control problem.

 

Mathematical Finance, Stochastic Analysis, and Machine Learning

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