Financial/Actuarial Mathematics Seminar

We study the impact of quadratic transaction costs on risk-sharing economies. Mathematically, this leads to coupled systems of forward backward stochastic differential equations (FBSDEs), which are linear in the case of exogenous volatility and quadratic in the case of endogenous volatility. We address the existence, uniqueness, and characterization of equilibria in this context. In particular, we discuss the effects trading costs have on equilibrium asset prices and their dynamics. The talk is based on joint works with Bruno Bouchard, Masaaki Fukasawa, Johannes Muhle-Karbe, and Dylan Possamai. Speaker(s): Martin Herdegen (Warwick)