Dual control Monte-Carlo method for tight bounds of value function in regime switching utility maximization
File(s)
Accepted version
Author(s)
Ma, J
Li, W
Zheng, H
Type
Journal Article
Abstract
In this paper, we study the dual control approach for the optimal asset allocation problem in a continuous-time regime-switching market. We find the lower and upper bounds of the value function that is a solution to a system of fully coupled nonlinear partial differential equations. These bounds can be tightened with additional controls to the dual process. We suggest a Monte-Carlo algorithm for computing the tight lower and upper bounds and show the method is effective with a variety of utility functions, including power, non-HARA and Yaari utilities. The latter two utilities are beyond the scope of any current methods available in finding the value function.
Date Issued
2017-11-01
Date Acceptance
2017-04-26
Citation
European Journal of Operational Research, 2017, 262 (3), pp.851-862
ISSN
0377-2217
Publisher
Elsevier
Start Page
851
End Page
862
Journal / Book Title
European Journal of Operational Research
Volume
262
Issue
3
Copyright Statement
© 2017, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Subjects
Social Sciences
Science & Technology
Technology
Management
Operations Research & Management Science
Business & Economics
Portfolio optimization
Regime switching
Dual control
Non-HARA utility
Yaari utility
Tight lower and upper bounds
Monte-Carlo method
PORTFOLIO OPTIMIZATION
STOCHASTIC MARKETS
MODEL
CHOICE
DRIFT
Publication Status
Published
Date Publish Online
2017-05-03