Causal optimal transport and its links to enlargement of filtrations and continuous-time stochastic optimization

B. Acciaio, J. Backhoff-Veraguas and A. Zalashko

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The martingale part in the semimartingale decomposition of a Brownian motion with respect to an enlargement of its filtration, is an anticipative mapping of the given Brownian motion. In analogy to optimal transport theory, we define causal transport plans in the context of enlargement of filtrations, as the Kantorovich counterparts of the aforementioned non-adapted mappings. We provide a necessary and sufficient condition for a Brownian motion to remain a semimartingale in an enlarged filtration, in terms of certain minimization problems over sets of causal transport plans. The latter are also used in order to give robust transport-based estimates for the value of having additional information, as well as model sensitivity with respect to the reference measure, for the classical stochastic optimization problems of utility maximization and optimal stopping.

Keywords: causal transport plan; filtration enlargement; robust bounds; semimartingale decomposition; stochastic optimization; value of information (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-05-01
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (5)

Published in Stochastic Processes and Their Applications, 1, May, 2020, 130(5), pp. 2918 - 2953. ISSN: 0304-4149

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:101864

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