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Limited Attention Allocation in a Stochastic Linear Quadratic System with Multiplicative Noise

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  • Xiangyu Cui
  • Jianjun Gao
  • Lingjie Kong

Abstract

This study addresses limited attention allocation in a stochastic linear quadratic system with multiplicative noise. Our approach enables strategic resource allocation to enhance noise estimation and improve control decisions. We provide analytical optimal control and propose a numerical method for optimal attention allocation. Additionally, we apply our ffndings to dynamic mean-variance portfolio selection, showing effective resource allocation across time periods and factors, providing valuable insights for investors.

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  • Xiangyu Cui & Jianjun Gao & Lingjie Kong, 2024. "Limited Attention Allocation in a Stochastic Linear Quadratic System with Multiplicative Noise," Papers 2403.18528, arXiv.org.
    • Handle: RePEc:arx:papers:2403.18528
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    References listed on IDEAS

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    1. Xiangyu Cui & Duan Li & Xun Li, 2017. "Mean-Variance Policy For Discrete-Time Cone-Constrained Markets: Time Consistency In Efficiency And The Minimum-Variance Signed Supermartingale Measure," Mathematical Finance, Wiley Blackwell, vol. 27(2), pages 471-504, April.
    2. Antonio Gargano & Alberto G Rossi, 2018. "Does It Pay to Pay Attention?," The Review of Financial Studies, Society for Financial Studies, vol. 31(12), pages 4595-4649.
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