We consider the problem of investing in a portfolio in order to track or "beat" a given benchmark. We study this problem from the point of view of almost sure/pathwise optimality. We first obtain a control that is optimal in the mean and this control is then shown to be also pathwise optimal. The standard Merton model leads to lognormality of the value process so that it does not possess the required ergodic properties. We obtain ergodicity by transforming the process so that it remains bounded thereby using a method that can be related to a random time change. We furthermore describe a general approach to solve the Hamilton-Jacobi-Bellman equation corresponding to the given problem setup.

Pathwise optimality for benchmark tracking

TOLOTTI, MARCO
2004

Abstract

We consider the problem of investing in a portfolio in order to track or "beat" a given benchmark. We study this problem from the point of view of almost sure/pathwise optimality. We first obtain a control that is optimal in the mean and this control is then shown to be also pathwise optimal. The standard Merton model leads to lognormality of the value process so that it does not possess the required ergodic properties. We obtain ergodicity by transforming the process so that it remains bounded thereby using a method that can be related to a random time change. We furthermore describe a general approach to solve the Hamilton-Jacobi-Bellman equation corresponding to the given problem setup.
2004
P., Dai Pra; W. J., Runggaldier; Tolotti, Marco
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/1169391
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