Data-Driven Non-Parametric Robust Control under Dependence Uncertainty

Erhan Bayraktar and Tao Chen

Chapter 5 in Peter Carr Gedenkschrift:Research Advances in Mathematical Finance, 2023, pp 141-178 from World Scientific Publishing Co. Pte. Ltd.

Abstract: We consider a multi-period stochastic control problem where the multivariate driving stochastic factor of the system has known marginal distributions but uncertain dependence structure. To solve the problem, we propose to implement the non-parametric adaptive robust control framework. We aim to find the optimal control against the worst-case copulae in a sequence of shrinking uncertainty sets which are generated from continuously observing the data. Then, we use a stochastic gradient descent ascent algorithm to numerically handle the corresponding high-dimensional dynamic inf-sup optimization problem. We present the numerical results in the context of utility maximization and show that the controller benefits from knowing more information about the uncertain model.

Keywords: Mathematical Finance; Quantitative Finance; Option Pricing; Derivatives; No Arbitrage; Asset Price Bubbles; Asset Pricing; Equilibrium; Volatility; Diffusion Processes; Jump Processes; Stochastic Integration; Trading Strategies; Portfolio Theory; Optimization; Securities; Bonds; Commodities; Futures (search for similar items in EconPapers)
JEL-codes: C02 C6 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789811280306_0005 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789811280306_0005 (text/html)
Ebook Access is available upon purchase.

Related works:
Working Paper: Data-Driven Nonparametric Robust Control under Dependence Uncertainty (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wschap:9789811280306_0005

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().