Predictable forward performance processes: Infrequent evaluation and applications to human-machine interactions

Liang, Gechun1; Strub, Moris S.2,3; Wang, Yuwei1,2

2023-07-01

10.1111/mafi.12408

MATHEMATICAL FINANCE   影响因子和分区

0960-1627

1467-9965

We study discrete-time predictable forward processes when trading times do not coincide with performance evaluation times in a binomial tree model for the financial market. The key step in the construction of these processes is to solve a linear functional equation of higher order associated with the inverse problem driving the evolution of the predictable forward process. We provide sufficient conditions for the existence and uniqueness and an explicit construction of the predictable forward process under these conditions. Furthermore, we find that these processes are inherently myopic in the sense that optimal strategies do not make use of future model parameters even if these are known. Finally, we argue that predictable forward preferences are a viable framework to model human-machine interactions occurring in automated trading or robo-advising. For both applications, we determine an optimal interaction schedule of a human agent interacting infrequently with a machine that is in charge of trading.

automated trading binomial tree model forward performance processes functional equation portfolio selection robo-advising

SCI ; SSCI

英语

通讯

National Natural Science Foundation of China["72050410356","12171169"]

Business & Economics ; Mathematics ; Mathematical Methods In Social Sciences

Business, Finance ; Economics ; Mathematics, Interdisciplinary Applications ; Social Sciences, Mathematical Methods

WOS:001020398500001

WILEY

ECONOMICS BUSINESS

Web of Science

1.Univ Warwick, Dept Stat, Coventry, England
2.Southern Univ Sci & Technol, Dept Informat Syst & Management Engn, Shenzhen, Peoples R China
3.Univ Warwick, Warwick Business Sch, Coventry, England

Liang, Gechun,Strub, Moris S.,Wang, Yuwei. Predictable forward performance processes: Infrequent evaluation and applications to human-machine interactions[J]. MATHEMATICAL FINANCE,2023,33(4).

Liang, Gechun,Strub, Moris S.,&Wang, Yuwei.(2023).Predictable forward performance processes: Infrequent evaluation and applications to human-machine interactions.MATHEMATICAL FINANCE,33(4).

Liang, Gechun,et al."Predictable forward performance processes: Infrequent evaluation and applications to human-machine interactions".MATHEMATICAL FINANCE 33.4(2023).