Ambiguous Impulse Control

Topic：Ambiguous Impulse Control

Speaker：LUO Yulei（Professor, University of Hong Kong）

Host：ZENG Yan, Professor, Lingnan College

Time and Date：14:30-17:30, Dec. 10, 2021

Meeting Link: https://meeting.tencent.com/dm/JLml62HNOKz1

Abstract:

In this paper, we develop a stochastic impulse control model with intermittent and lumpy adjustments when the decision maker (DM) faces Knightian uncertainty due to ambiguity aversion (or model uncertainty due to a preference for robustness). We show the optimality and uniqueness of the solutions to the robust impulse control problems for three stochastic processes: (i) the geometric Brownian motion (GBM), (ii) the Ornstein--Uhlenbeck (OU) Process, and (iii) the arithmetic Brownian motion (ABM). We then quantitatively examine the implications of Knightian uncertainty on the optimal barriers under the three driving processes in the target zone model and the cash management/inventory model, and find that the width of the inaction region is decreasing with the degree of ambiguity in the GBM case, while it is increasing with the degree ambiguity aversion in the OU and ABM cases.

 Profile of the speaker:

Yulei Luo is currently Professor of economics at The University of Hong Kong (HKU). Prof. Luo obtained his PhD in Economics from Princeton University in 2005. The main research interests of Prof. Luo are in macroeconomics, household finance, and international finance. His research has been published in peer-reviewed journals including American Economic Journal: Macroeconomics, Economic Journal, Journal of Economic Theory, Management Science, Journal of the European Economic Association, Journal of International Economics, Review of Economic Dynamics, European Economic Review, Journal of Money, Credit and Banking, and Journal of Economic Dynamics and Control.