Target achieving portfolio under model misspecification: quadratic optimization framework

Volume 39 / 2012

Dariusz Zawisza 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.

Authors

  • Dariusz ZawiszaInstitute of Mathematics
    Faculty of Mathematics and Computer Science
    Jagiellonian University
    Łojasiewicza 6
    30-348 Kraków, Poland
    e-mail

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