A Mean-Field Theory of $Θ$-Expectations

The canonical theory of sublinear expectations, a foundation of stochastic calculus under ambiguity, is insensitive to the non-convex geometry of primitive uncertainty models. This paper develops a new stochastic calculus for a structured class of such non-convex models. We introduce a class of fully coupled Mean-Field Forward-Backward Stochastic Differential Equations where the BSDE driver is defined by a pointwise maximization over a law-dependent, non-convex set. Mathematical tractability is achieved via a uniform strong concavity assumption on the driver with respect to the control variable, which ensures the optimization admits a unique and stable solution. A central contribution is to establish the Lipschitz stability of this optimizer from primitive geometric and regularity conditions, which underpins the entire well-posedness theory. We prove local and global well-posedness theorems for the FBSDE system. The resulting valuation functional, the $Θ$-Expectation, is shown to be dynamically consistent and, most critically, to violate the axiom of sub-additivity. This, along with its failure to be translation invariant, demonstrates its fundamental departure from the convex paradigm. This work provides a rigorous foundation for stochastic calculus under a class of non-convex, endogenous ambiguity.

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ArXiv.org
Published
2025-07-30
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Prenatal Screening and Diagnostics
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article

A Mean-Field Theory of $Θ$-Expectations

ArXiv.org
Prenatal Screening and Diagnostics
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A Mean-Field Theory of $Θ$-Expectations

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Abstract

The canonical theory of sublinear expectations, a foundation of stochastic calculus under ambiguity, is insensitive to the non-convex geometry of primitive uncertainty models. This paper develops a new stochastic calculus for a structured class of such non-convex models. We introduce a class of fully coupled Mean-Field Forward-Backward Stochastic Differential Equations where the BSDE driver is defined by a pointwise maximization over a law-dependent, non-convex set. Mathematical tractability is achieved via a uniform strong concavity assumption on the driver with respect to the control variable, which ensures the optimization admits a unique and stable solution. A central contribution is to establish the Lipschitz stability of this optimizer from primitive geometric and regularity conditions, which underpins the entire well-posedness theory. We prove local and global well-posedness theorems for the FBSDE system. The resulting valuation functional, the $Θ$-Expectation, is shown to be dynamically consistent and, most critically, to violate the axiom of sub-additivity. This, along with its failure to be translation invariant, demonstrates its fundamental departure from the convex paradigm. This work provides a rigorous foundation for stochastic calculus under a class of non-convex, endogenous ambiguity.

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A Mean-Field Theory of $Θ$-Expectations · ArXiv.org (2025) | TGRS Research Map | TGRS