Portfolio optimization in a hidden Markov model for stock returns with jumps
Topic
In a market consisting of a money market and one stock with
price process dS(t)=S(t)[a(t) dt + b dW(t) + g dM(t)] where W is a Wiener process and M is a compensated Poisson process, an agent invests his initial wealth in a portfolio to maximize utility of wealth at terminal time T. The portfolio strategy may only depend on the observed stock price S(t). The constants b and g may be inferred from this, but not the unknown drift a(t). It is assumed to be a Markov process with known states and rate matrix.We reduce the problem to a martingale representation problem for Levy processes.
This is joint work with Dr. Joern Sass.
price process dS(t)=S(t)[a(t) dt + b dW(t) + g dM(t)] where W is a Wiener process and M is a compensated Poisson process, an agent invests his initial wealth in a portfolio to maximize utility of wealth at terminal time T. The portfolio strategy may only depend on the observed stock price S(t). The constants b and g may be inferred from this, but not the unknown drift a(t). It is assumed to be a Markov process with known states and rate matrix.We reduce the problem to a martingale representation problem for Levy processes.
This is joint work with Dr. Joern Sass.
Speakers
Additional Information
MITACS Math Finance Seminar 2007
Ulrich Haussmann (University of British Columbia)
Ulrich Haussmann (University of British Columbia)