Time and nodal decomposition with implicit non-anticipativity constraints in dynamic portfolio optimization

Diana Barro () and Elio Canestrelli
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Elio Canestrelli: Department of Applied Mathematics - University of Venice

GE, Growth, Math methods from EconWPA

Abstract: We propose a decomposition method for the solution of a dynamic portfolio optimization problem which fits the formulation of a multistage stochastic programming problem. The method allows to obtain time and nodal decomposition of the problem in its arborescent formulation applying a discrete version of Pontryagin Maximum Principle. The solution of the decomposed problems is coordinated through a fixed- point weighted iterative scheme. The introduction of an optimization step in the choice of the weights at each iteration allows to solve the original problem in a very efficient way.

Keywords: Stochastic programming; Discrete time optimal control problem; Iterative scheme; Portfolio optimization (search for similar items in EconPapers)
JEL-codes: C61 C63 D81 G11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: Written 2005-10-28
Note: Type of Document - pdf; pages: 18
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