Stochastic Optimal Control with Applications in Financial Engineering

Hans P. Geering (), Florian Herzog () and Gabriel Dondi ()
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Hans P. Geering: ETH Zurich, Measurement and Control Laboratory
Florian Herzog: SwissQuant Group AG
Gabriel Dondi: SwissQuant Group AG

A chapter in Optimization and Optimal Control, 2010, pp 375-408 from Springer

Abstract: Summary In this chapter, it is shown how stochastic optimal control theory can be used in order to solve problems of optimal asset allocation under consideration of risk aversion. Two types of problems are presented: a problem type with a power utility function with a constant relative risk aversion coefficient and a problem type with an exponential utility function with a constant absolute risk aversion coefficient. The problems can be solved analytically in the unconstrained cases. In order to keep this chapter reasonably self-contained, short introductions to deterministic optimal control theory, stochastic processes, stochastic dynamic systems, and stochastic optimal control theory are given.

Keywords: stochastic optimal control; asset management; multi-period portfolio optimization (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spochp:978-0-387-89496-6_18

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DOI: 10.1007/978-0-387-89496-6_18

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