The Contruction of Portfolios of Financial Assets: An Application of Optimal Stochastic Control

The notions of financial engineering have their roots in disciplines that have long been part of the subject matter studied by control theorists. In particular, many of the main results in financial economics are direct applications of the use of random variables, stochastic differential and differe...

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Bibliographic Details
Published inThe Control Handbook pp. 737 - 758
Format Book Chapter
LanguageEnglish
Published United Kingdom CRC Press 2011
Taylor & Francis Group
Subjects
Electronics engineering
ENVIRONMENTAL ENGINEERING & TECHNOLOGY
SCIENCE: GENERAL ISSUES
Log Price Process
Tangent Portfolio
Portfolio Weight Vector
Risk Free Rate
Ito’s Lemma
Sharpe Ratio
Optimal Portfolio
Pair Trading
Stochastic Differential Equation
Market Portfolio
Risk Free Asset
Linear Quadratic Regulator Problem
Problem P0
Stochastic Optimal Control
Continuous Time Model
Growth Optimal Portfolio
Risky Asset
Portfolio Weight
Continuous Time Portfolio Optimization
Asset Log Prices
Risk Free Bond
Asset Returns
Efficient Frontier
Portfolio Return
Resulting Capital Asset Pricing Model
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ISBN9781420073607
1420073605
DOI10.1201/b10382-42

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Summary:The notions of financial engineering have their roots in disciplines that have long been part of the subject matter studied by control theorists. In particular, many of the main results in financial economics are direct applications of the use of random variables, stochastic differential and difference equations and discrete-and continuous-time stochastic control theory. Yet these results have been developed almost completely separately from the developments in the controls field with very few researchers publishing in both areas.
ISBN:9781420073607
1420073605
DOI:10.1201/b10382-42