Dynamic Portfolio Choice

Olivier Le Courtois and Christian Walter ()

Chapter 12 in Extreme Financial Risks and Asset Allocation, 2014, pp 303-329 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The principles of portfolio construction in a dynamic setting rest on the modeling of stock fluctuations and on the solution of an optimization program bearing on future consumption and wealth. At the beginning of the research in the field, the modeling of stock fluctuations was Brownian and optimization was performed solving a Hamilton–Jacobi–Bellman equation. This is the classic portfolio choice theory in continuous time, as developed by Merton (1969, 1971). For a detailed presentation, see the books of Merton (1992) and Quittard-Pinon (2003). See also Cox and Huang (1989) for the martingale approach. Other possibilities then appeared: for instance introducing jumps into the dynamics of stocks, or adding uncertainty to probabilities in the case of classic Brownian motions…

Keywords: Lévy Process; Extreme Risks; Risk Management; Portfolio Management; Asset Allocation (search for similar items in EconPapers)
Date: 2014
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