Mean-variance type controls involving a hidden Markov chain: models and numerical approximation

DOI10.1093/IMAMCI/DNU027zbMATH Open1328.93247arXiv1401.4478OpenAlexW2963989515MaRDI QIDQ3465822FDOQ3465822

Authors: Zhixin Yang, George Yin, Q. Zhang 

Publication date: 22 January 2016

Published in: IMA Journal of Mathematical Control and Information (Search for Journal in Brave)

Abstract: Motivated by applications arising in networked systems, this work examines controlled regime-switching systems that stem from a mean-variance formulation. A main point is that the switching process is a hidden Markov chain. An additional piece of information, namely, a noisy observation of switching process corrupted by white noise is available. We focus on minimizing the variance subject to a fixed terminal expectation. Using the Wonham filter, we convert the partially observed system to a completely observable one first. Since closed-form solutions are virtually impossible be obtained, a Markov chain approximation method is used to devise a computational scheme. Convergence of the algorithm is obtained. A numerical example is provided to demonstrate the results.

Full work available at URL: https://arxiv.org/abs/1401.4478

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zbMATH Keywords

numerical methodmean-variance controlWonham filter

Mathematics Subject Classification ID

Filtering in stochastic control theory (93E11) Markov chains (discrete-time Markov processes on discrete state spaces) (60J10) Stochastic systems in control theory (general) (93E03)

Cited In (6)

• Mean-variance portfolio selection with dynamic attention behavior in a hidden Markov model
• Numerical methods for optimal harvesting strategies in random environments under partial observations
• Exponential contraction of switching jump diffusions with a hidden Markov chain
• Applications of Numerical Methods for Stochastic Controlled Switching Diffusions with a Hidden Markov Chain: Case Studies on Distributed Power Management and Communication Resource Allocation
• Sequential tracking of a hidden Markov chain using point process observations
• Signal-to-noise matrix and model reduction in continuous-time hidden Markov models

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