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Optimal solution of investment problems via linear parabolic equations generated by Kalman filter

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  • Nikolai Dokuchaev

Abstract

We consider optimal investment problems for a diffusion market model with non-observable random drifts that evolve as an Ito's process. Admissible strategies do not use direct observations of the market parameters, but rather use historical stock prices. For a non-linear problem with a general performance criterion, the optimal portfolio strategy is expressed via the solution of a scalar minimization problem and a linear parabolic equation with coefficients generated by the Kalman filter.

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  • Nikolai Dokuchaev, 2008. "Optimal solution of investment problems via linear parabolic equations generated by Kalman filter," Papers 0804.4522, arXiv.org.
    • Handle: RePEc:arx:papers:0804.4522
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    File URL: http://arxiv.org/pdf/0804.4522
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    Cited by:

    1. Nikolai Dokuchaev, 2015. "Modelling Possibility of Short-Term Forecasting of Market Parameters for Portfolio Selection," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 143-161, May.
    2. Nikolai Dokuchaev, 2015. "Optimal portfolio with unobservable market parameters and certainty equivalence principle," Papers 1502.02352, arXiv.org.

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