• DocumentCode
    2257234
  • Title

    Optimal terminal wealth under partial information: Both the drift and the volatility driven by a discrete time Markov chain

  • Author

    Taksar, Michael ; Zeng, Xudong

  • Author_Institution
    Dept. of Math., Univ. of Missouri, Columbia, MO, USA
  • fYear
    2008
  • fDate
    9-11 Dec. 2008
  • Firstpage
    257
  • Lastpage
    262
  • Abstract
    We consider a multi-stock market model. The stock price process satisfies a stochastic differential equation where both the drift and the volatility are driven by a discrete-time Markov chain of finite states. Not only the underlying Brownian motion but also the Markov chain in the stochastic differential equation are assumed to be unobservable. Investors can observe the stock price process only. The main result of this paper is that we derive the approximation of the optimal trading strategy and the corresponding optimal expected utility function from terminal wealth.
  • Keywords
    Brownian motion; Markov processes; approximation theory; differential equations; discrete time systems; optimisation; pricing; share prices; stock markets; utility theory; Brownian motion; discrete time finite state Markov chain; multistock market model; optimal expected utility function; optimal terminal wealth; optimal trading strategy approximation; partial information; stochastic differential equation; stock price; Differential equations; Hidden Markov models; Information filtering; Mathematics; Optimal control; Optimization methods; Portfolios; Solid modeling; Stochastic processes; Utility theory;
  • fLanguage
    English
  • Publisher
    ieee
  • Conference_Titel
    Decision and Control, 2008. CDC 2008. 47th IEEE Conference on
  • Conference_Location
    Cancun
  • ISSN
    0191-2216
  • Print_ISBN
    978-1-4244-3123-6
  • Electronic_ISBN
    0191-2216
  • Type

    conf

  • DOI
    10.1109/CDC.2008.4739491
  • Filename
    4739491