6533b85ffe1ef96bd12c252c
RESEARCH PRODUCT
A Perturbation Approach to Continuous-Time Portfolio Selection Under Stochastic Investment Opportunities
Dietmar Leisensubject
Power utilityMathematical optimizationPartial differential equationbusiness.industryMathematicsofComputing_NUMERICALANALYSISPerturbation (astronomy)Asset allocationSymbolic computationDynamic programmingSoftwareComputingMethodologies_SYMBOLICANDALGEBRAICMANIPULATIONEconomicsPortfoliobusinessdescription
This paper studies portfolio selection in continuous-time models with stochastic investment opportunities. We consider asset allocation problems where preferences are specified as power utility derived from terminal wealth as well as consumption-savings problems with recursive utility Epstein-Zin preferences. The paper approximates the associated dynamic programming problem by perturbing the coefficients of the stochastic dynamics. We represent the Hamilton-Jacobi-Bellman equation as a series of partial differential equations that can be solved iteratively in closed-form through computer algebra software, at any desired accuracy.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2013-01-01 | SSRN Electronic Journal |