F. Herzog, G. Dondi, and H.P. Geering (Switzerland)
Stochastic Optimization, Optimal Control, Statistical and Probabilistic Modelling, Portfolio Management, and Fi nance.
This paper develops a discrete time portfolio optimization for multi asset and long-term investment objectives. The expected returns of the risky assets are modelled using a factor model based on stochastic Gaussian processes. A multivariable Generalized Autoregressive Conditional Het eroskedasticity (GARCH) model describes volatilities and correlations of the risky assets. A mean-variance objective function is maximized over terminal wealth steps into the future resulting in the decision rules for the optimal portfo lio choice. In order to solve this multi-period constrained optimization problem, a model predictive control approach is used to solve the optimal control problem.
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