Small time path behavior of double stochastic integrals and applications to stochastic control

Abstract

We study the small time path behavior of double stochastic integrals of the form f 0t (f 0r b(u) dW(u)) T dW(r), where W is a d-dimensional Brownian motion and b is an integrable progressively measurable stochastic process taking values in the set of d × d-matrices. We prove a law of the iterated logarithm that holds for all bounded progressively measurable b and give additional results under continuity assumptions on b. As an application, we discuss a stochastic control problem that arises in the study of the super-replication of a contingent claim under gamma constraints. © Institute of Mathematical Statistics, 2005.