arXiv Open Access 2019

Near-Optimal Dynamic Asset Allocation in Financial Markets with Trading Constraints

Thijs Kamma Antoon Pelsser

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Abstrak

We develop a dual-control method for approximating investment strategies in incomplete environments that emerge from the presence of trading constraints. Convex duality enables the approximate technology to generate lower and upper bounds on the optimal value function. The mechanism rests on closed-form expressions pertaining to the portfolio composition, from which we are able to derive the near-optimal asset allocation explicitly. In a real financial market, we illustrate the accuracy of our approximate method on a dual CRRA utility function that characterises the preferences of a finite-horizon investor. Negligible duality gaps and insignificant annual welfare losses substantiate accuracy of the technique.

Topik & Kata Kunci

q-fin.MF q-fin.PM q-fin.RM

Penulis (2)

Thijs Kamma

Antoon Pelsser

Format Sitasi

APA MLA BibTeX

Kamma, T., Pelsser, A. (2019). Near-Optimal Dynamic Asset Allocation in Financial Markets with Trading Constraints. https://arxiv.org/abs/1906.12317

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Informasi Jurnal

Tahun Terbit: 2019
Bahasa: en
Sumber Database: arXiv
Akses: Open Access ✓