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LQG for portfolio optimization

M. Abeille, E. Serie, A. Lazaric and X. Brokmann

Papers from arXiv.org

Abstract: We introduce a generic solver for dynamic portfolio allocation problems when the market exhibits return predictability, price impact and partial observability. We assume that the price modeling can be encoded into a linear state-space and we demonstrate how the problem then falls into the LQG framework. We derive the optimal control policy and introduce analytical tools that preserve the intelligibility of the solution. Furthermore, we link the existence and uniqueness of the optimal controller to a dynamical non-arbitrage criterion. Finally, we illustrate our method using a synthetic portfolio allocation problem.

Date: 2016-11, Revised 2016-11
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Citations: View citations in EconPapers (1)

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