Self-Consistent Adjoint Policy Iteration for Constrained Dynamic Portfolio Choice

Jeonggyu Huh, Yeoneung Kim and Seungwon Jeong

Papers from arXiv.org

Abstract: We develop simulation-based policy iteration for continuous-time portfolio choice with predictable returns and convex constraints. Each outer step re-evaluates a fixed-latent open-loop backpropagation-through-time (OL-BPTT) adjoint after deployment and solves the constrained update. Shifted-adjoint cancellation controls the adjoint--HJB Hamiltonian-gradient discrepancy by the policy-improvement residual. For CRRA portfolios, exact HJB policy iteration identifies the optimal reduced value factor, while population OL-BPTT iteration converges globally when the adjoint update is directionally improving and approximate stationarity is asymptotically HJB-compatible. A theorem-matched occupation audit yields maximal $95\%$ upper endpoints of $0.066$ for the primitive directional ratio and $0.074$ for a stronger norm-relative ratio, both against the half-step threshold $0.75$. In the high-precision $50$--$50$ occupancy/broad-anchor design of a three-factor, fifty-asset benchmark, current-policy re-evaluation outperforms matched pooled refinement under the on-policy and broad evaluation laws.

Date: 2026-08, Revised 2026-09
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