Target achieving portfolio under model misspecification: quadratic optimization framework
We incorporate model uncertainty into a quadratic portfolio optimization framework. We consider an incomplete continuous time market with a non-tradable stochastic factor. Two stochastic game problems are formulated and solved using Hamilton–Jacobi–Bellman–Isaacs equations. The proof of existence and uniqueness of a solution to the resulting semilinear PDE is also provided. The latter can be used to extend many portfolio optimization results.