Optimal Solution of Investment Problems Via Linear Parabolic Equations Generated by Kalman Filter

DOI10.1137/S036301290342557XMaRDI QIDQ3427520zbMATH OpenFDO

Authors Nikolai Dokuchaev

Publication date 20 March 2007

Published in SIAM Journal on Control and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0804.4522

zbMATH Keywords

Kalman filteroptimal portfoliononobservable parameters

Mathematics Subject Classification ID

Gaussian processes (60G15) Filtering in stochastic control theory (93E11) Optimality conditions for problems involving randomness (49K45) Optimal stochastic control (93E20)

Abstract: We consider optimal investment problems for a diffusion market model with non-observable random drifts that evolve as an Ito's process. Admissible strategies do not use direct observations of the market parameters, but rather use historical stock prices. For a non-linear problem with a general performance criterion, the optimal portfolio strategy is expressed via the solution of a scalar minimization problem and a linear parabolic equation with coefficients generated by the Kalman filter.

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• Mean‐Reverting Market Model: Speculative Opportunities and Non‐Arbitrage
• Optimal investment-consumption-insurance with partial information
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• On the implied market price of risk under the stochastic numéraire
• Volatility estimation from short time series of stock prices
• Optimal portfolio and certainty equivalence estimator for the appreciation rate

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