Long-term optimal investment in matrix valued factor models
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Publication:5280243
portfolio choiceWishart processrisk sensitive controllong-runisoelastic utilitylong horizon optimal investment problemsmatrix valued state variablesoptimal strategy convergenceportfolio turnpike
Diffusion processes (60J60) Portfolio theory (91G10) Semilinear parabolic equations (35K58) PDEs with randomness, stochastic partial differential equations (35R60) Existence theories for optimal control problems involving partial differential equations (49J20) Applications of stochastic analysis (to PDEs, etc.) (60H30)
Abstract: Long term optimal investment problems are studied in a factor model with matrix valued state variables. Explicit parameter restrictions are obtained under which, for an isoelastic investor, the finite horizon value function and optimal strategy converge to their long-run counterparts as the investment horizon approaches infinity. This convergence also yields portfolio turnpikes for general utilities. By using results on large time behaviour of semi-linear partial differential equations, our analysis extends affine models, where the Wishart process drives investment opportunities, to a non-affine setting. Furthermore, in the affine setting, an example is constructed where the value function is not exponentially affine, in contrast to models with vector-valued state variables.
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Cited in
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