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Type: Journal article
Title: Robust optimal portfolio choice under Markovian regime-switching model
Author: Elliott, R.
Siu, T.
Citation: Methodology and Computing in Applied Probability, 2009; 11(Sp Iss 2):145-157
Publisher: Kluwer Academic Publishers
Issue Date: 2009
ISSN: 1387-5841
Statement of
Robert J. Elliott and Tak Kuen Siu
Abstract: We investigate an optimal portfolio selection problem in a continuous-time Markov-modulated financial market when an economic agent faces model uncertainty and seeks a robust optimal portfolio strategy. The key market parameters are assumed to be modulated by a continuous-time, finite-state Markov chain whose states are interpreted as different states of an economy. The goal of the agent is to maximize the minimal expected utility of terminal wealth over a family of probability measures in a finite time horizon. The problem is then formulated as a Markovian regime-switching version of a two-player, zero-sum stochastic differential game between the agent and the market. We solve the problem by the Hamilton-Jacobi-Bellman approach.
Keywords: Robust optimal portfolio
Utility maximization
Model uncertainty
Stochastic differential game
Change of measures
DOI: 10.1007/s11009-008-9085-3
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