On Positive Solutions of a Delay Equation Arising When Trading in Financial Markets | IEEE Journals & Magazine | IEEE Xplore

On Positive Solutions of a Delay Equation Arising When Trading in Financial Markets


Abstract:

We consider a discrete-time linear state equation with delay, which arises as a model for a trader's account value when buying and selling a risky asset in a financial ma...Show More

Abstract:

We consider a discrete-time linear state equation with delay, which arises as a model for a trader's account value when buying and selling a risky asset in a financial market. The state equation includes a nonnegative feedback gain α and a sequence u(k), which models asset returns that are within known bounds but otherwise arbitrary. We introduce two thresholds, α- and α+, depending on these bounds, and prove that for α <; α-, state positivity is guaranteed for all time and all asset-return sequences, i.e., bankruptcy is ruled out and positive solutions of the state equation are continuable indefinitely. On the other hand, for α > α+, we show that there is always a sequence of asset returns for which the state fails to be positive for all time, i.e., along this sequence, bankruptcy occurs and the solution of the state equation ceases to be meaningful after some finite time. Finally, this article also includes a conjecture, which says that for the “gap” interval α- ≤ α ≤ α+, state positivity is also guaranteed for all time. Support for the conjecture, both theoretical and computational, is provided.
Published in: IEEE Transactions on Automatic Control ( Volume: 65, Issue: 7, July 2020)
Page(s): 3143 - 3149
Date of Publication: 07 October 2019

ISSN Information:


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