EconPapers    
Economics at your fingertips  
 

Time-inconsistent stochastic optimal control problems in insurance and finance

Łukasz Delong
Additional contact information
Łukasz Delong: Warsaw School of Economics SGH, Collegium of Economic Analysis, Division of Probabilistic Methods

Collegium of Economic Analysis Annals, 2018, issue 51, 229-254

Abstract: In this paper we study time-inconsistent stochastic optimal control problems. We discuss the assumption of time-consistency of the optimal solution and its fundamental relation with Bellman equation. We point out consequences of time-inconsistency of the optimal solution and we explain the concept of Nash equilibrium which allows us to handle the time-inconsistency. We describe an extended Hamilton-Jacobi-Bellman equation which can be used to derive an equilibrium strategy in a time-inconsistent stochastic optimal control problem. We give three examples of time-inconsistent dynamic optimization problems which can arise in insurance and finance. We present the solution for exponential utility maximization problem with wealth-dependent risk aversion.

Keywords: Bellman equation; Nash equilibrium; time-inconsistency; wealth-dependent risk aversion (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://rocznikikae.sgh.waw.pl/p/roczniki_kae_z51_11.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sgh:annals:i:51:y:2018:p:229-254

Access Statistics for this article

Collegium of Economic Analysis Annals is currently edited by Joanna Plebaniak, Beata Czarnacka-Chrobot

More articles in Collegium of Economic Analysis Annals from Warsaw School of Economics, Collegium of Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Michał Bernardelli ().

 
Page updated 2019-03-02
Handle: RePEc:sgh:annals:i:51:y:2018:p:229-254