Search Results - subject:"Stochastic Control"

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The objective of this chapter is to illustrate how some of the models developed in the first part of the book can be useful to address practical investment management questions. We consider four short cases. The first one explores the interest of including a factor X(t) compared to the...

Persistent link: https://www.econbiz.de/10011206423

Managing Against a Benchmark

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The Oxford English Dictionary defines a benchmark, or more precisely a ‘bench-mark’, as ‘a surveyor's mark cut in some durable material, as a rock, wall, gate-pillar, face of a building, etc., to indicate the starting, closing, or any suitable intermediate point in a line of levels for the...

Persistent link: https://www.econbiz.de/10011206508

Asset and Liability Management: Jump-Diffusion Case

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

The following sections are included:IntroductionFinancial Market, Investment Portfolio and LiabilityFormulation of the Asset and Liability Management ProblemDynamic Programming and the Value FunctionSolving the ALM Problem Under Affine Drift AssumptionsSolving the ALM Problem Under Standard...

Persistent link: https://www.econbiz.de/10011206547

Fund Separation and Fractional Kelly Strategies

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In the diffusions setting introduced in Part I, investment management models have a significant benefit: they generate an investment strategy in closed form. This closed form strategy can be transformed, via a fund separation theorem or a fractional Kelly strategy, into a practical recipe for...

Persistent link: https://www.econbiz.de/10011206626

Investment Constraints

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In the investment models we have considered so far, the fund manager could set the investment policy freely, as long as the allocation to each of the assets remained finite. In practice the situation is different. Fund managers are subject to investment constraints set by regulatory bodies,...

Persistent link: https://www.econbiz.de/10011206646

Jumps in Asset Prices

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In Part I of this book, asset prices and factor processes were represented by diffusion processes, driven by correlated Brownian motions. In Part II we extend the theory — using as far as possible the same general approach — to jump-diffusion processes, where the driving Brownian motions are...

Persistent link: https://www.econbiz.de/10011206650

Factor and Securities Models

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

Portfolio optimisation models, whether static or dynamic, are inscribed within a much wider portfolio management framework. The current industry standard is the three-step portfolio management process proposed by Maginn et al. (2007). This process finds its roots in Markowitz' famous ‘two...

Persistent link: https://www.econbiz.de/10011206712

Risk-Sensitive Asset Management

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

In 1999 Tomasz Bielecki and Stanley Pliska proposed an alternative to the Merton model based on a risk-sensitive control criterion (Bielecki and Pliska, 1999). Their risk-sensitive asset management model has three appealing features: the optimisation criterion is intuitive, it is consistent with...

Persistent link: https://www.econbiz.de/10011206716

Factor Estimation: Filtering and Black-Litterman

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

least to work by Wonham (1968) on the ‘separation theorem’ of stochastic control… …

Persistent link: https://www.econbiz.de/10011206726

General Jump-Diffusion Setting

Davis, Mark H. A.; Lleo, Sébastien - In: Risk-Sensitive Investment Management

in the asset price model. The problem can be handled by classical methods of stochastic control, and the result is C1 … as the assets. Of course, the factor jumps will no longer disappear under change of measure, so our equivalent stochastic … control problem will lead to an HJB equation in the form of a PIDE (partial integro-differential equation), a PDE with a non …

Persistent link: https://www.econbiz.de/10011206743