Long-term optimal investment in matrix valued factor models

DOI10.1137/15M1030625zbMATH Open1367.91169arXiv1408.7010MaRDI QIDQ5280243FDOQ5280243

Authors: Scott Robertson, Hao Xing 

Publication date: 20 July 2017

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

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.

Full work available at URL: https://arxiv.org/abs/1408.7010

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zbMATH Keywords

portfolio choiceWishart processrisk sensitive controllong-runisoelastic utilitylong horizon optimal investment problemsmatrix valued state variablesoptimal strategy convergenceportfolio turnpike

Mathematics Subject Classification ID

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)

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Cited In (5)

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• Turnpike property and convergence rate for an investment and consumption model
• Optimal value and growth tilts in long-horizon portfolios
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