Predictable forward performance processes: The binomial case

Monday, June 11, 2018 - 9:00am - 9:50am
Lind 305
Thaleia Zariphopoulou (The University of Texas at Austin)
In this talk, I will introduce a new class of forward performance processes that are endogenous and predictable with regards to an underlying market information set and, furthermore, they are updated at discrete times. I will discuss in detail a binomial model whose parameters are random and updated dynamically as the market evolves. The key step in the construction of the forward performance process is to solve a single-period inverse investment problem, namely, to determine, period-by-period and conditionally on the current market information, the end-time utility function from a given initial-time value function. This inverse problem reduces to a functional equation for which conditions for existence and uniqueness in the class of inverse marginal functions are established. Open problems related to forward criteria with asynchronous evaluation and trading frequencies will be discussed. (joint work with B. Angoshtari and X.-Y. Zhou)