Stochastic control with signatures via Riccati equations on the tensor algebra

Abstract

We solve in semi-explicit form a class of non-Markovian stochastic optimal control problems with path-dependent rewards, using path signatures. We reformulate the control problem as the computation of Laplace transforms of signature functionals thanks to the Boué-Dupuis representation. Exploiting recent signature representations of such transforms on tensor algebras, we determine the value process and the optimal control through an infinite-dimensional system of Riccati equations on the extended tensor algebra. We establish an explicit feedback representation of the optimal control and the value process as an infinite linear combination of the time-extended signature of the controlled process, with time-dependent coefficients. The expansions being intrinsically local, we propose a dynamic recentering algorithm to ensure a global representation over the entire time horizon. We illustrate the approach on genuinely path-dependent, non-linear examples that go beyond the tractable linear-quadratic setting, including the tracking of linear functionals of the signature and signature lifts of Volterra control problems.