Robust Time-Consistent Portfolio Selection for an Investor under CEV Model with Inflation Influence

Peng Yang

Mathematical Problems in Engineering, 2020, vol. 2020, 1-14

Abstract:

A robust time-consistent optimal investment strategy selection problem under inflation influence is investigated in this article. The investor may invest his wealth in a financial market, with the aim of increasing wealth. The financial market includes one risk-free asset, one risky asset, and one inflation-indexed bond. The price process of the risky asset is governed by a constant elasticity of variance (CEV) model. The investor is ambiguity-averse; he doubts about the model setting under the original probability measure. To dispel this concern, he seeks a set of alternative probability measures, which are absolutely continuous to the original probability measure. The objective of the investor is to seek a time-consistent strategy so as to maximize his expected terminal wealth meanwhile minimizing his variance of the terminal wealth in the worst-case scenario. By using the stochastic optimal control technique, we derive closed-form solutions for the optimal time-consistent investment strategy, the probability scenario, and the value function. Finally, the influences of model parameters on the optimal investment strategy and utility loss function are examined through numerical experiments.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:2359135

DOI: 10.1155/2020/2359135

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