Discrete-Time Portfolio Optimization under Maximum Drawdown Constraint with Partial Information and Deep Learning Resolution

Carmine de Franco (), Johann Nicolle () and Huyên Pham ()
Additional contact information
Carmine de Franco: OSSIAM, 80, Avenue de la Grande Armée
Johann Nicolle: LPSM-OSSIAM, 80, Avenue de la Grande Armée
Huyên Pham: Université de Paris, Bâtiment Sophie Germain, Case courrier 7012

A chapter in Stochastic Analysis, Filtering, and Stochastic Optimization, 2022, pp 101-136 from Springer

Abstract: Abstract We study a discrete-time portfolio selection problem with partial information and maximum drawdown constraint. Drift uncertainty in the multidimensional framework is modeled by a prior probability distribution. In this Bayesian framework, we derive the dynamic programming equation using an appropriate change of measure, and obtain semi-explicit results in the Gaussian case. The latter case, with a CRRA utility function is completely solved numerically using recent deep learning techniques for stochastic optimal control problems. We emphasize the informative value of the learning strategy versus the non-learning one by providing empirical performance and sensitivity analysis with respect to the uncertainty of the drift. Furthermore, we show numerical evidence of the close relationship between the non-learning strategy and a no short-sale constrained Merton problem, by illustrating the convergence of the former towards the latter as the maximum drawdown constraint vanishes.

Date: 2022
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:spr:sprchp:978-3-030-98519-6_5

Ordering information: This item can be ordered from
http://www.springer.com/9783030985196

DOI: 10.1007/978-3-030-98519-6_5

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().