Mariana Khapko

Assistant Professor of Finance

University of Toronto

Department of Management at University of Toronto Scarborough & Rotman School of Management

Email: mariana.khapko (at)

Mariana Khapko is an Assistant Professor of Finance at the University of Toronto, Canada. She is also an affiliated Research Fellow of the Swedish House of Finance at the Stockholm School of Economics. Mariana obtained her PhD in Finance from the Stockholm School of Economics, under the supervision of Tomas Björk.

Her research focuses on theoretical models of financial markets. She has published articles on asset pricing and portfolio choice, time-inconsistent control theory, information in securities markets, and financial market design in the following journals: Journal of Financial Economics, Management Science, Journal of Financial Markets, and Finance and Stochastics. Mariana is also the co-author of the recently-published Springer Finance Series book "Time-Inconsistent Control Theory with Finance Applications" (available here).

About this book

This book is devoted to problems of stochastic control and stopping that are time inconsistent in the sense that they do not admit a Bellman optimality principle. These problems are cast in a game-theoretic framework, with the focus on subgame-perfect Nash equilibrium strategies. The general theory is illustrated with a number of finance applications.

In dynamic choice problems, time inconsistency is the rule rather than the exception. Indeed, as Robert H. Strotz pointed out in his seminal 1955 paper, relaxing the widely used ad hoc assumption of exponential discounting gives rise to time inconsistency. Other famous examples of time inconsistency include mean-variance portfolio choice and prospect theory in a dynamic context. For such models, the very concept of optimality becomes problematic, as the decision maker’s preferences change over time in a temporally inconsistent way. In this book, a time-inconsistent problem is viewed as a non-cooperative game between the agent’s current and future selves, with the objective of finding intrapersonal equilibria in the game-theoretic sense. A range of finance applications are provided, including problems with non-exponential discounting, mean-variance objective, time-inconsistent linear quadratic regulator, probability distortion, and market equilibrium with time-inconsistent preferences.

Time-Inconsistent Control Theory with Finance Applications offers the first comprehensive treatment of time-inconsistent control and stopping problems, in both continuous and discrete time, and in the context of finance applications. Intended for researchers and graduate students in the fields of finance and economics, it includes a review of the standard time-consistent results, bibliographical notes, as well as detailed examples showcasing time inconsistency problems. For the reader unacquainted with standard arbitrage theory, an appendix provides a toolbox of material needed for the book.