Dual control Monte-Carlo method for tight bounds of value function in regime switching utility maximization

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Title: Dual control Monte-Carlo method for tight bounds of value function in regime switching utility maximization
Authors: Ma, J
Li, W
Zheng, H
Item 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.
Issue Date: 3-May-2017
Date of Acceptance: 26-Apr-2017
URI: http://hdl.handle.net/10044/1/52972
DOI: https://dx.doi.org/10.1016/j.ejor.2017.04.056
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/
Keywords: Social Sciences
Science & Technology
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
MD Multidisciplinary
Operations Research
Publication Status: Published
Appears in Collections:Financial Mathematics
Faculty of Natural Sciences

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