L4

In this talk we discuss a utility-risk portfolio selection problem. By considering the first order condition for the objective function, we derive a primitive static problem, called Nonlinear Moment Problem, subject to a set of constraints involving nonlinear functions of “mean-field terms”, to completely characterize the optimal terminal wealth. Under a mild assumption on utility, we establish the existence of the optimal solutions for both utility-downside-risk and utility-strictly-convex-risk problems, their positive answers have long been missing in the literature. In particular, the existence result in utility-downside-risk problem is in contrast with that of mean-downside-risk problem considered in Jin-Yan-Zhou (2005) in which they prove the non-existence of optimal solution instead and we can show the same non-existence result via the corresponding Nonlinear Moment Problem. This is joint work with K.C. Wong (University of Hong Kong) and S.C.P. Yam (Chinese University of Hong Kong).

We consider the system of nonlinear differential equations
\begin{equation}
(1) \qquad
\begin{cases}
\dot u_n(t) + \lambda^{2n} u_n(t) 
- \lambda^{\beta n} u_{n-1}(t)^2 + \lambda^{\beta(n+1)} u_n(t) u_{n+1}(t) = 0,\\
u_n(0) = a_n, n \in \mathbb{N}, \quad \lambda > 1, \beta > 0.
\end{cases}
\end{equation}
In this talk we explain why this system is a model for the Navier-Stokes equations of hydrodynamics. The natural question is to find a such functional space, where one could prove the existence and the uniqueness of solution. In 2008, A. Cheskidov proved that the system (1) has a unique "strong" solution if $\beta \le 2$, whereas the "strong" solution does not exist if $\beta > 3$. (Note, that the 3D-Navier-Stokes equations correspond to the value $\beta = 5/2$.) We show that for sufficiently "good" initial data the system (1) has a unique Leray-Hopf solution for all $\beta > 0$.

The general problem of shock formation in three space dimensions was solved by Christodoulou in 2007. In his work also a complete description of the maximal development of the initial data is provided. This description sets up the problem of continuing the solution beyond the point where the solution ceases to be regular. This problem is called the shock development problem. It belongs to the category of free boundary problems but in addition has singular initial data because of the behavior of the solution at the blowup surface. In my talk I will present the solution to this problem in the case of spherical symmetry. This is joint work with Demetrios Christodoulou.

We present a dynamic theory for time-inconsistent stopping problems. The theory is developed under the paradigm of expected discounted
payoff, where the process to stop is continuous and Markovian. We introduce equilibrium stopping policies, which are imple-mentable
stopping rules that take into account the change of preferences over time. When the discount function induces decreasing impatience, we
establish a constructive method to find equilibrium policies. A new class of stopping problems, involving equilibrium policies, is
introduced, as opposed to classical optimal stopping. By studying the stopping of a one-dimensional Bessel process under hyperbolic discounting, we illustrate our theory in an explicit manner.

In this talk, we aim to provide a valuation framework for counterparty credit risk based on a structural default model which incorporates jumps and dependence between the assets of interest. In this framework default is caused by the firm value falling below a prespecified threshold following unforeseeable shocks, which deteriorate its liquidity and ability to meet its liabilities. The presence of dependence between names captures wrong-way risk and right-way risk effects. The structural model traces back to Merton (1974), who considered only the possibility of default occurring at the maturity of the contract; first passage time models starting from the seminal contribution of Black and Cox (1976) extend the original framework to incorporate default events at any time during the lifetime of the contract. However, as the driving risk process used is the Brownian motion, all these models suffers of vanishing credit spreads over the short period - a feature not observed in reality. As a consequence, the Credit Value Adjustment (CVA) would be underestimated for short term deals as well as the so-called gap risk, i.e. the unpredictable loss due to a jump event in the market. Improvements aimed at resolving this issue include for example random default barriers, time dependent volatilities, and jumps. In this contribution, we adopt Lévy processes and capture dependence via a linear combination of two independent Lévy processes representing respectively the systematic risk factor and the idiosyncratic shock. We then apply this framework to the valuation of CVA and DVA related to equity contracts such as forwards and swaps. The main focus is on the impact of correlation between entities on the value of CVA and DVA, with particular attention to wrong-way risk and right-way risk, the inclusion of mitigating clauses such as netting and collateral, and finally the impact of gap risk. Particular attention is also devoted to model calibration to market data, and development of adequate numerical methods for the complexity of the model considered.

We derive a closed form portfolio optimization rule for an investor who is diffident about mean return and volatility estimates, and has a CRRA utility. The novelty is that confidence is here represented using ellipsoidal uncertainty sets for the drift, given a volatility realization. This specification affords a simple and concise analysis, as the optimal portfolio allocation policy is shaped by a rescaled market Sharpe ratio, computed under the worst case volatility. The result is based on a max-min Hamilton-Jacobi-Bellman-Isaacs PDE, which extends the classical Merton problem and reverts to it for an ambiguity-neutral investor.

I will present a joint work with Leonid Kovalev and Jani Onninen. The proofs are  based on topological arguments (degree theory)  and the properties  of planar  quasiconformal mappings. These new ideas  apply well to inner variational equations of conformally invariant energy integrals; in particular, to the Hopf-Laplace equation for the Dirichlet integral.

[based on joint work with Li Guo and  Bin Zhang]

 We apply to  the study of exponential sums on lattice points in
convex rational polyhedral cones, the generalised algebraic approach of
Connes and Kreimer to  perturbative quantum field theory.  For this purpose
we equip the space of    cones   with a connected coalgebra structure.
The  algebraic Birkhoff factorisation of Connes and Kreimer   adapted  and
generalised to this context then gives rise to a convolution factorisation
of exponential sums on lattice points in cones. We show that this
factorisation coincides with the classical Euler-Maclaurin formula
generalised to convex rational polyhedral cones by Berline and Vergne by
means of  an interpolating holomorphic function.
We define  renormalised conical zeta values at non-positive integers as the
Taylor coefficients at zero of the interpolating holomorphic function.  When
restricted to Chen cones, this  yields yet another way to renormalise
multiple zeta values  at non-positive integers.