Diogo Pinheiro

Dynamic programming for a Markov-switching jump–diffusion

Abstract We consider an optimal control problem with a deterministic finite horizon and state variable dynamics given by a Markov-switching jump–diffusion stochastic differential equation. Our main results extend the dynamic programming technique to this larger family of stochastic optimal control problems. More specifically, we provide a detailed proof of Bellman’s optimality principle (or dynamic programming principle) and obtain the corresponding Hamilton–Jacobi–Belman equation, which turns out to be a partial integro-differential equation due to the extra terms arising from the Levy process and the Markov process. As an application of our results, we study a finite horizon consumption–investment problem for a jump–diffusion financial market consisting of one risk-free asset and one risky asset whose coefficients are assumed to depend on the state of a continuous time finite state Markov process. We provide a detailed study of the optimal strategies for this problem, for the economically relevant families of power utilities and logarithmic utilities.

Chaos in the square billiard with a modified reflection law

The purpose of this paper is to study the dynamics of a square billiard with a non-standard reflection law such that the angle of reflection of the particle is a linear contraction of the angle of incidence. We present numerical and analytical arguments that the nonwandering set of this billiard decomposes into three invariant sets, a parabolic attractor, a chaotic attractor, and a set consisting of several horseshoes. This scenario implies the positivity of the topological entropy of the billiard, a property that is in sharp contrast with the integrability of the square billiard with the standard reflection law.

Interaction of two charges in a uniform magnetic field: I. Planar problem

The thesis starts with a short introduction to smooth dynamical systems and Hamiltonian dynamical systems. The aim of the introductory chapter is to collect basic results and concepts used in the thesis to make it self–contained. The second chapter of the thesis deals with the interaction of two charges moving in R2 in a magnetic field B. This problem can be formulated as a Hamiltonian system with four degrees of freedom. Assuming that the magnetic field is uniform and the interaction potential has rotational symmetry we reduce this Hamiltonian system to one with two degrees of freedom; for certain values of the conserved quantities and choices of parameters, we obtain an integrable system. Furthermore, when the interaction potential is of Coulomb type, we prove that, for suitable regime of parameters, there are invariant subsets on which this system contains a suspension of a subshift of finite type. This implies non–integrability for this system with a Coulomb type interaction. Explicit knowledge of the reconstruction map and a dynamical analysis of the reduced Hamiltonian systems are the tools we use in order to give a description for the various types of dynamical behaviours in this system: from periodic to quasiperiodic and chaotic orbits, from bounded to unbounded motion. In the third chapter of the thesis we study the interaction of two charges moving in R3 in a magnetic field B. This problem can also be formulated as a Hamiltonian system, but one with six degrees of freedom. We keep the assumption that the magnetic field is uniform and the interaction potential has rotational symmetry and reduce this Hamiltonian system to one with three degrees of freedom; for certain values of the conserved quantities and choices of parameters, we obtain a system with two degrees of freedom. Furthermore, when the interaction potential is chosen to be Coulomb we prove the existence of an invariant submanifold where the system can be reduced by a further degree of freedom. The reductions simplify the analysis of some properties of this system: we use the reconstruction map to obtain a classification for the dynamics in terms of boundedness of the motion and the existence of collisions. Moreover, we study the scattering map associated with this system in the limit of widely separated trajectories. In this limit we prove that the norms of the gyroradii of the particles are conserved during an interaction and that the interaction of the two particles is responsible for a rotation of the guiding centres around a fixed centre in the case of two charges whose sum is not zero and a drift of the guiding centres in the case of two charges whose sum is zero.

Optimal life insurance purchase, consumption and investment on a financial market with multi-dimensional diffusive terms

We introduce an extension to Mertons famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the income to purchase life insurance in order to provide for his estate, while investing his savings in a financial market comprised of one risk-free security and an arbitrary number of risky securities driven by multi-dimensional Brownian motion. We then provide a detailed analysis of the optimal consumption, investment and insurance purchase strategies for the wage earner whose goal is to maximize the expected utility obtained from his family consumption, from the size of the estate in the event of premature death, and from the size of the estate at the time of retirement. We use dynamic programming methods to obtain explicit solutions for the case of discounted constant relative risk aversion utility functions and describe new analytical results which are presented together with the corresponding economic interpretations.

Behavioural and dynamical scenarios for contingent claims valuation in incomplete markets

We study the problem of determination of asset prices in an incomplete market proposing three different but related scenarios. One scenario uses a market game approach whereas the other two are based on risk sharing or regret minimizing considerations. Dynamical schemes modelling the convergence of the buyers and of the sellers prices to a unique price are proposed.

An Overview of Optimal Life Insurance Purchase, Consumption and Investment Problems

We provide an extension to Merton’s famous continuous time model of optimal consumption and investment, in the spirit of previous works by Pliska and Ye, to allow for a wage earner to have a random lifetime and to use a portion of the income to purchase life insurance in order to provide for his estate, while investing his savings in a financial market consisting of one risk-free security and an arbitrary number of risky securities whose diffusive terms are driven by a multi-dimensional Brownian motion. The wage earner’s problem is to find the optimal consumption, investment, and insurance purchase decisions in order to maximize expected utility of consumption, of the size of the estate in the event of premature death, and of the size of the estate at the time of retirement. Dynamic programming methods are used to obtain explicit solutions for the case of constant relative risk aversion utility functions, and60pt]First author considered as corresponding author. Please check. some new results are presented together with the corresponding economic interpretations.

Focal decomposition, renormalization and semiclassical physics

We review some recent results concerning a connection between focal decomposition, renormalization and semiclassical physics. The dynamical behaviour of a family of mechanical systems which includes the pendulum at small neighbourhoods of the equilibrium but after long intervals of time can be characterized through a renormalization scheme acting on the dynamics of this family. We have proved that the asymptotic limit of this renormalization scheme is universal: it is the same for all the elements in the considered class of mechanical systems. As a consequence, we have obtained an asymptotic universal focal decomposition for this family of mechanical systems which can now be used to compute estimates for propagators in semiclassical physics.

Interaction of Two Charges in a Uniform Magnetic Field: II. Spatial Problem

The interaction of two charges moving in ℝ3 in a magnetic field B can be formulated as a Hamiltonian system with six degrees of freedom. Assuming that the magnetic field is uniform and the interaction potential has rotation symmetry, we reduce this system to one with three degrees of freedom. For special values of the conserved quantities, choices of parameters or restriction to the coplanar case, we obtain systems with two degrees of freedom. Specialising to the case of Coulomb interaction, these reductions enable us to obtain many qualitative features of the dynamics. For charges of the same sign, the gyrohelices either “bounce-back”, “pass-through”, or exceptionally converge to coplanar solutions. For charges of opposite signs, we decompose the state space into “free” and “trapped” parts with transitions only when the particles are coplanar. A scattering map is defined for those trajectories that come from and go to infinite separation along the field direction. It determines the asymptotic parallel velocities, guiding centre field lines, magnetic moments and gyrophases for large positive time from those for large negative time. In regimes where gyrophase averaging is appropriate, the scattering map has a simple form, conserving the magnetic moments and parallel kinetic energies (in a frame moving along the field with the centre of mass) and rotating or translating the guiding centre field lines. When the gyrofrequencies are in low-order resonance, however, gyrophase averaging is not justified and transfer of perpendicular kinetic energy is shown to occur. In the extreme case of equal gyrofrequencies, an additional integral helps us to analyse further and prove that there is typically also transfer between perpendicular and parallel kinetic energy.

An asymptotic universal focal decomposition for non-isochronous potentials

Galileo, in the XVII century, observed that the small os- cillations of a pendulum seem to have constant period. In fact, the Taylor expansion of the period map of the pendulum is constant up to second order in the initial angular velocity around the stable equi- librium. It is well known that, for small oscillations of the pendulum and small intervals of time, the dynamics of the pendulum can be ap- proximated by the dynamics of the harmonic oscillator. We study the dynamics of a family of mechanical systems that includes the pendulum at small neighbourhoods of the equilibrium but after long intervals of time so that the second order term of the period map can no longer be neglected. We analyze such dynamical behaviour through a renor- malization scheme acting on the dynamics of this family of mechanical systems. The main theorem states that the asymptotic limit of this renormalization scheme is universal: it is the same for all the elements in the considered class of mechanical systems. As a consequence, we obtain an universal asymptotic focal decomposition for this family of mechanical systems. This paper is intended to be the first of a series of articles aiming at a semiclassical quantization of systems of the pendu- lum type as a natural application of the focal decomposition associated to the two-point boundary value problem.

On a variational sequential bargaining pricing scheme

Abstract We propose a minimization problem as a model for the interaction between two agents trading a contingent claim in an incomplete discrete-time multiperiod financial market. The agents personal valuations for the contingent claim are assumed to depend on probability measures representing their beliefs concerning the future states of the world. The agents’ goal is to achieve a common price for the contingent claim to be traded, while deviating as litle as possible from their initial beliefs. Under appropriate conditions, we prove that the minimization problem under consideration admits at least one solution. Furthermore, we provide a detailed description for the minimizers – orbits of a finite horizon discrete-time dynamical system on the space of probability measures representing the agents beliefs.