Stochastic optimal control, international finance and debt

Stochastic Optimal Control in Finance

Preface These are the extended version of the Cattedra Galileiana I gave in April 2003 in Scuola Normale, Pisa. I am grateful to the Society of Amici della Scuola Normale for the funding and to Professors Maurizio Pratelli, Marzia De Donno and Paulo Guasoni for organizing these lectures and their hospitality. In these notes, I give a very quick introduction to stochastic optimal control and the...

-Monotone Fourier Methods for Optimal Stochastic Control in Finance

Stochastic control problems in finance having complex controls inevitably give rise to low order accuracy, usually at most second order. Fourier methods are efficient at advancing the solution between control monitoring dates, but are not monotone. This gives rise to possible violations of arbitrage inequalities. We devise a preprocessing step for Fourier methods which involves projecting the G...

Optimal Control Models in Finance

Stochastic Control, and Application to Finance

Internal Finance versus Bank Debt

This paper considers a two-period model in which a firm needs outside financing in period 2. If a firm establishes a reputation with a bank already in the first period, it may reduce the cost and increase the availability of bank debt in the second period. To establish such a reputation, the firm must induce the bank to monitor in period 1. Bank monitoring effort is non-contractible, so the fir...