Thaleia Zariphopoulou, University of Texas, Austin
Wed Apr 20 2022 4:30 PM to 5:30 PM
Financial Mathematics Seminar
Human-machine interaction models and stochastic optimization
I will introduce a model of human-machine interaction (HMI) in portfolio choice (robo-advising). Modeling difficulties stem from the limited ability to quantify the human’s risk preferences and describe their evolution, but also from the fact that the stochastic environment, in which the machine optimizes, adapts to real-time incoming information that is exogenous to the human. Furthermore, the human’s risk preferences and the machine’s states may evolve at different scales.
This interaction creates an adaptive cooperative game with both asymmetric and incomplete information exchange between the two parties. As a result, challenging questions arise on, among others, how frequently the two parties should communicate, what information can the machine accurately detect, infer and predict, how the human reacts to exogenous events, how to improve the inter-linked reliability between the human and the machine, and others. Such HMI models give rise to new, non-standard optimization problems that combine adaptive stochastic control, stochastic differential games, optimal stopping, multi-scales and learning.