Overview
- Offers a systematic treatment of time-inconsistent stochastic control and stopping problems
- Provides a game-theoretic approach to time inconsistency
- Treats both discrete and continuous time problems, and includes many applications to finance
Part of the book series: Springer Finance (FINANCE)
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Table of contents (25 chapters)
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Front Matter
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Optimal Control in Discrete Time
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Front Matter
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Time-Inconsistent Control in Discrete Time
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Front Matter
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Optimal Control in Continuous Time
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Front Matter
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Time-Inconsistent Control in Continuous Time
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Front Matter
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Keywords
About this book
In dynamic choice problems, time inconsistency is the rule rather than the exception. Indeed, as Robert H. Strotz pointed out in his seminal 1955 paper, relaxing the widely used ad hoc assumption of exponential discounting gives rise to time inconsistency. Other famous examples of time inconsistency include mean-variance portfolio choice and prospect theory in a dynamic context. For such models, the very concept of optimality becomes problematic, as the decision maker’s preferences change over time in a temporally inconsistent way. In this book, a time-inconsistent problem is viewed as a non-cooperative game between the agent’s currentand future selves, with the objective of finding intrapersonal equilibria in the game-theoretic sense. A range of finance applications are provided, including problems with non-exponential discounting, mean-variance objective, time-inconsistent linear quadratic regulator, probability distortion, and market equilibrium with time-inconsistent preferences.
Time-Inconsistent Control Theory with Finance Applications offers the first comprehensive treatment of time-inconsistent control and stopping problems, in both continuous and discrete time, and in the context of finance applications. Intended for researchers and graduate students in the fields of finance and economics, it includes a review of the standard time-consistent results, bibliographical notes, as well as detailed examples showcasing time inconsistency problems. For the reader unacquainted with standard arbitrage theory, an appendix provides a toolbox of material needed for the book.
Reviews
Authors and Affiliations
About the authors
Mariana Khapko is an Assistant Professor of Finance at the University of Toronto,Canada. She is also an affiliated Research Fellow of the Swedish House of Finance at the Stockholm School of Economics. Her research focuses on financial mathematics and financial markets. She has published articles on time-inconsistent control theory, asset pricing and portfolio choice, information in securities markets, and financial market design. Mariana obtained her PhD in Finance from the Stockholm School of Economics, under the supervision of Tomas Björk.
Agatha Murgoci currently works as a senior quantitative developer at Ørsted, a leading off-shore wind energy company. Prior to this, she was an assistant professor at Copenhagen Business School and at Aarhus University, Denmark. She has published papers on time-inconsistent control theory, good deal bounds, convexity corrections, and the dynamics of sovereign and bank CDS spreads. Agatha obtained her PhD in Mathematical Finance from the Stockholm School of Economics, under the supervision of Tomas Björk.
Bibliographic Information
Book Title: Time-Inconsistent Control Theory with Finance Applications
Authors: Tomas Björk, Mariana Khapko, Agatha Murgoci
Series Title: Springer Finance
DOI: https://doi.org/10.1007/978-3-030-81843-2
Publisher: Springer Cham
eBook Packages: Mathematics and Statistics, Mathematics and Statistics (R0)
Copyright Information: The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021
Hardcover ISBN: 978-3-030-81842-5Published: 03 November 2021
Softcover ISBN: 978-3-030-81845-6Published: 04 November 2022
eBook ISBN: 978-3-030-81843-2Published: 02 November 2021
Series ISSN: 1616-0533
Series E-ISSN: 2195-0687
Edition Number: 1
Number of Pages: XVII, 326
Topics: Applications of Mathematics, Game Theory, Economics, Social and Behav. Sciences, Optimization, Financial Engineering, Capital Markets