Target achieving portfolio under model misspecification: quadratic optimization framework
Volume 39 / 2012
Applicationes Mathematicae 39 (2012), 425-443
MSC: Primary 91G10; Secondary 91A15, 91A23, 49L20, 49N90.
DOI: 10.4064/am39-4-3
Abstract
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.
