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

DOI10.1137/S036301290342557XzbMATH Open1110.49025arXiv0804.4522MaRDI QIDQ3427520FDOQ3427520

Authors: Nikolai Dokuchaev 

Publication date: 20 March 2007

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

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.

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

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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)

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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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