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Faculty
Larsen
Kasper Larsen, Assistant Professor
Ph.D., University of Southern Denmark
E-mail: kasper@andrew.cmu.edu
Office: Wean Hall 7219
Phone: 412-268-6380
Personal web site

Research:

The first research objective is to prove the existence of PDE characterizations for a general class of optimization problems posed over a set of finitely-additive probability measures, i.e., over a subset of L1's bi-dual. Several interesting problems in math finance necessitate the use of finitely-additive measures instead of the countably-additive counterparts. Finitely-additive measures introduce a highly non-trivial singularity into the optimization problem. Together with a world leading expert in viscosity solutions and stochastic optimal control theory Mete Soner (ETH, Zurich) and long-term collaborator Gordan Zitkovic (UT-Austin), see the attached letters, we seek to prove a PDE characterization of the value function when the optimizer is a finitely-additive probability measure. Besides the areas of math finance and stochastic control theory, the proposed research will also impact the theory of asset pricing in incomplete markets since our formulation is highly related to marginal-utility-based pricing.

The second research objective is to prove the existence of equilibria in specific incomplete continuous-time and state models. The existing equilibrium theory requires model completeness, which implies that the individual investors are assumed able to trade their future uncertain income streams for upfront cash. Models in which investors cannot perform such a trade are deemed incomplete. Equilibrium theory has gained significant interest in the math finance community. However, incomplete models are mathematically tremendously complex and for the last 25 years the problem of proving equilibrium existence in incomplete continuous models has remained almost untouched. Therefore, the proposed research will impact the field of math finance. By its interdisciplinary nature the proposed research is also expected to impact the field of theoretical economics.


Selected Publications:

  • Satisfying convex risk limits by trading written with T. Pirvu, S. E. Shreve and R. Tutuncu. Finance & Stochastics 9, 177-195 (2005).
  • Optimal portfolio delegation when parties have different coefficients of risk aversion. Quantitative Finance 5, 503-512 (2005).
  • No arbitrage and the growth optimal portfolio written with M. M. Christensen. Stochastic Analysis and Applications 25, 255-280(2007).
  • Stability of utility-maximization in incomplete markets written with G. Zitkovic. Stochastic Processes and their Applications 117, 1642-1662 (2007).
  • On the semimartingale property via bounded logarithmic utility written with G. Zitkovic. Annals of Finance 4, 255-268 (2008).
  • Continuity of utility-maximization with respect to preferences. Mathematical Finance 19, 237-250 (2009).
  • A note on the existence of the power investor's optimizer. Finance and Stochastics 15, 183-190 (2011).
  • Equilibrium in Securities Markets with Heterogeneous Investors and Unspanned Income Risk, joint with P. O. Christensen and C. Munk. Journal of Economic Theory 147, 1035-1063 (2012).
  • Horizon dependence of utility optimizers in incomplete models, joint with Hang Yu. Finance & Stochastics 6, 779-801 (2012).
  • Utility maximization under convex constraints, joint with G. Zitkovic. Annals of Applied Probability 23, 665692 (2013).