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Displaying similar documents to “Target achieving portfolio under model misspecification: quadratic optimization framework”

Optimal position targeting with stochastic linear-quadratic costs

Stefan Ankirchner, Thomas Kruse (2015)

Banach Center Publications

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We consider the dynamic control problem of attaining a target position at a finite time T, while minimizing a linear-quadratic cost functional depending on the position and speed. We assume that the coefficients of the linear-quadratic cost functional are stochastic processes adapted to a Brownian filtration. We provide a probabilistic solution in terms of two coupled backward stochastic differential equations possessing a singularity at the terminal time T. We verify optimality of the...

Robust portfolio selection under exponential preferences

Dariusz Zawisza (2010)

Applicationes Mathematicae

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We consider an incomplete market with an untradable stochastic factor and a robust investment problem based on the CARA utility. We formulate it as a stochastic differential game problem, and use Hamilton-Jacobi-Bellman-Isaacs equations to derive an explicit representation of the robust optimal portfolio; the HJBI equation is transformed using a substitution of the Cole-Hopf type. Not only the pure investment problem, but also a problem of robust hedging is taken into account: an agent...

Equivalent cost functionals and stochastic linear quadratic optimal control problems

Zhiyong Yu (2013)

ESAIM: Control, Optimisation and Calculus of Variations

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This paper is concerned with the stochastic linear quadratic optimal control problems (LQ problems, for short) for which the coefficients are allowed to be random and the cost functionals are allowed to have negative weights on the square of control variables. We propose a new method, the equivalent cost functional method, to deal with the LQ problems. Comparing to the classical methods, the new method is simple, flexible and non-abstract. The new method can also be applied to deal with...

Portfolio optimization for pension plans under hybrid stochastic and local volatility

Sung-Jin Yang, Jeong-Hoon Kim, Min-Ku Lee (2015)

Applications of Mathematics

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Based upon an observation that it is too restrictive to assume a definite correlation of the underlying asset price and its volatility, we use a hybrid model of the constant elasticity of variance and stochastic volatility to study a portfolio optimization problem for pension plans. By using asymptotic analysis, we derive a correction to the optimal strategy for the constant elasticity of variance model and subsequently the fine structure of the corrected optimal strategy is revealed....

Risk minimizing strategies for a portfolio of interest-rate securities

Andrzej Palczewski (2008)

Banach Center Publications

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The paper presents an application of stochastic control methods to fixed income management in an incomplete market with external economic factors. The objective of an investor is the minimization of a shortfall risk. The problem is reduced to the multidimensional Bellman equation. It is shown that for a large class of loss functions the equation possesses a continuous solution. We also consider loss functions from the HARA class and prove that for such functions the Hamilton-Jacobi-Bellman...

Optimal investment strategy for a non-life insurance company: quadratic loss

Łukasz Delong (2005)

Applicationes Mathematicae

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The aim of this paper is to construct an optimal investment strategy for a non-life insurance business. We consider an insurance company which provides, in exchange for a single premium, full coverage to a portfolio of risks which generates losses according to a compound Poisson process. The insurer invests the premium and trades continuously on the financial market which consists of one risk-free asset and n risky assets (Black-Scholes market). We deal with the insurer's wealth path...

Nash equilibrium payoffs for stochastic differential games with reflection

Qian Lin (2013)

ESAIM: Control, Optimisation and Calculus of Variations

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In this paper, we investigate Nash equilibrium payoffs for nonzero-sum stochastic differential games with reflection. We obtain an existence theorem and a characterization theorem of Nash equilibrium payoffs for nonzero-sum stochastic differential games with nonlinear cost functionals defined by doubly controlled reflected backward stochastic differential equations.

Differential games of partial information forward-backward doubly SDE and applications

Eddie C. M. Hui, Hua Xiao (2014)

ESAIM: Control, Optimisation and Calculus of Variations

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This paper addresses a new differential game problem with forward-backward doubly stochastic differential equations. There are two distinguishing features. One is that our game systems are initial coupled, rather than terminal coupled. The other is that the admissible control is required to be adapted to a subset of the information generated by the underlying Brownian motions. We establish a necessary condition and a sufficient condition for an equilibrium point of nonzero-sum games...

Regularization method for stochastic mathematical programs with complementarity constraints

Gui-Hua Lin, Masao Fukushima (2010)

ESAIM: Control, Optimisation and Calculus of Variations

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In this paper, we consider a class of stochastic mathematical programs with equilibrium constraints (SMPECs) that has been discussed by Lin and Fukushima (2003). Based on a reformulation given therein, we propose a regularization method for solving the problems. We show that, under a weak condition, an accumulation point of the generated sequence is a feasible point of the original problem. We also show that such an accumulation point is S-stationary to the problem under additional...

Applications of time-delayed backward stochastic differential equations to pricing, hedging and portfolio management in insurance and finance

Łukasz Delong (2012)

Applicationes Mathematicae

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We investigate novel applications of a new class of equations which we call time-delayed backward stochastic differential equations. Time-delayed BSDEs may arise in insurance and finance in an attempt to find an investment strategy and an investment portfolio which should replicate a liability or meet a target depending on the strategy applied or the past values of the portfolio. In this setting, a managed investment portfolio serves simultaneously as the underlying security on which...

A pension fund in the accumulation phase: a stochastic control approach

Salvatore Federico (2008)

Banach Center Publications

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In this paper we propose and study a continuous time stochastic model of optimal allocation for a defined contribution pension fund in the accumulation phase. The level of wealth is constrained to stay above a "solvency level". The fund manager can invest in a riskless asset and in a risky asset, but borrowing and short selling are prohibited. The model is naturally formulated as an optimal stochastic control problem with state constraints and is treated by the dynamic programming approach....

A two armed bandit type problem revisited

Gilles Pagès (2010)

ESAIM: Probability and Statistics

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In Benaïm and Ben Arous (2003) is solved a multi-armed bandit problem arising in the theory of learning in games. We propose a short and elementary proof of this result based on a variant of the Kronecker lemma.