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Title: Robust time-inconsistent stochastic linear-quadratic control with drift disturbance
Authors: Han, Bingyan
Pun, Chi Seng
Wong, Hoi Ying
Keywords: Science::Mathematics
Issue Date: 2022
Source: Han, B., Pun, C. S. & Wong, H. Y. (2022). Robust time-inconsistent stochastic linear-quadratic control with drift disturbance. Applied Mathematics and Optimization, 86(1), 4-.
Project: MOE2017-T2-1-044
Journal: Applied Mathematics and Optimization
Abstract: This paper studies stochastic linear-quadratic control with a time-inconsistent objective and worst-case drift disturbance. We allow the agent to introduce disturbances to reflect her uncertainty about the drift coefficient of the controlled state process. We adopt a two-step equilibrium control approach to characterize the robust time-consistent controls, which can preserve the order of preference. Under a general framework allowing random parameters, we derive a sufficient condition for equilibrium controls using the forward-backward stochastic differential equation approach. We also provide analytical solutions to mean-variance portfolio problems for various settings. Our empirical studies confirm the improvement in portfolio’s performance in terms of out-of-sample Sharpe ratio by incorporating with robustness.
ISSN: 0095-4616
DOI: 10.1007/s00245-022-09871-2
Rights: © 2022 The Author(s), under exclusive licence to Springer Science Business Media, LLC, part of Springer Nature. All rights reserved.
Fulltext Permission: none
Fulltext Availability: No Fulltext
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