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

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

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.

Suggested Citation

  • Acciaio, B. & Backhoff-Veraguas, J. & Zalashko, A., 2020. "Causal optimal transport and its links to enlargement of filtrations and continuous-time stochastic optimization," LSE Research Online Documents on Economics 101864, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:101864
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    File URL: http://eprints.lse.ac.uk/101864/
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    References listed on IDEAS

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    1. Amendinger, Jürgen & Imkeller, Peter & Schweizer, Martin, 1998. "Additional logarithmic utility of an insider," Stochastic Processes and their Applications, Elsevier, vol. 75(2), pages 263-286, July.
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    3. Mathias Beiglbock & Pierre Henry-Labord`ere & Friedrich Penkner, 2011. "Model-independent Bounds for Option Prices: A Mass Transport Approach," Papers 1106.5929, arXiv.org, revised Feb 2013.
    4. Stefan Ankirchner & Steffen Dereich & Peter Imkeller, 2005. "The Shannon information of filtrations and the additional logarithmic utility of insiders," Papers math/0503013, arXiv.org, revised May 2006.
    5. Mathias Beiglböck & Pierre Henry-Labordère & Friedrich Penkner, 2013. "Model-independent bounds for option prices—a mass transport approach," Finance and Stochastics, Springer, vol. 17(3), pages 477-501, July.
    6. Florens, Jean-Pierre & Fougere, Denis, 1996. "Noncausality in Continuous Time," Econometrica, Econometric Society, vol. 64(5), pages 1195-1212, September.
    7. Amendinger, Jürgen & Imkeller, Peter & Schweizer, Martin, 1998. "Additional logarithmic utility of an insider," SFB 373 Discussion Papers 1998,25, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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    Cited by:

    1. Julio Backhoff-Veraguas & Gregoire Loeper & Jan Obloj, 2024. "Geometric Martingale Benamou-Brenier transport and geometric Bass martingales," Papers 2406.04016, arXiv.org.
    2. Julio Backhoff-Veraguas & Daniel Bartl & Mathias Beiglböck & Manu Eder, 2020. "Adapted Wasserstein distances and stability in mathematical finance," Finance and Stochastics, Springer, vol. 24(3), pages 601-632, July.
    3. Bingyan Han, 2022. "Distributionally robust risk evaluation with a causality constraint and structural information," Papers 2203.10571, arXiv.org, revised Aug 2024.
    4. Mathias Beiglbock & Gudmund Pammer & Lorenz Riess, 2024. "Change of numeraire for weak martingale transport," Papers 2406.07523, arXiv.org.
    5. Julio Backhoff-Veraguas & Xin Zhang, 2023. "Dynamic Cournot-Nash equilibrium: the non-potential case," Mathematics and Financial Economics, Springer, volume 17, number 1, March.

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    More about this item

    Keywords

    causal transport plan; filtration enlargement; robust bounds; semimartingale decomposition; stochastic optimization; value of information;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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