Robust time-inconsistent stochastic linear-quadratic control with drift disturbance
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 app...
| मुख्य लेखकों: | , , |
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| अन्य लेखक: | |
| स्वरूप: | Journal Article |
| भाषा: | English |
| प्रकाशित: |
2022
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| विषय: | |
| ऑनलाइन पहुंच: | https://hdl.handle.net/10356/163191 |
| _version_ | 1826115740531425280 |
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| author | Han, Bingyan Pun, Chi Seng Wong, Hoi Ying |
| author2 | School of Physical and Mathematical Sciences |
| author_facet | School of Physical and Mathematical Sciences Han, Bingyan Pun, Chi Seng Wong, Hoi Ying |
| author_sort | Han, Bingyan |
| collection | NTU |
| description | 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. |
| first_indexed | 2024-10-01T04:00:07Z |
| format | Journal Article |
| id | ntu-10356/163191 |
| institution | Nanyang Technological University |
| language | English |
| last_indexed | 2024-10-01T04:00:07Z |
| publishDate | 2022 |
| record_format | dspace |
| spelling | ntu-10356/1631912022-11-28T07:04:06Z Robust time-inconsistent stochastic linear-quadratic control with drift disturbance Han, Bingyan Pun, Chi Seng Wong, Hoi Ying School of Physical and Mathematical Sciences Science::Mathematics Robust Control Stochastic Linear-Quadratic Control 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. Ministry of Education (MOE) Bingyan Han is supported by UIC Start-up Research Fund (Reference No: R72021109). Chi Seng Pun gratefully acknowledges the Ministry of Education (MOE), AcRF Tier 2 Grant (Reference No: MOE2017-T2-1-044) for the funding of this research. Hoi Ying Wong acknowledges the support from the Research Grants Council of Hong Kong via GRF 14303915. 2022-11-28T07:04:06Z 2022-11-28T07:04:06Z 2022 Journal Article 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-. https://dx.doi.org/10.1007/s00245-022-09871-2 0095-4616 https://hdl.handle.net/10356/163191 10.1007/s00245-022-09871-2 2-s2.0-85131735601 1 86 4 en MOE2017-T2-1-044 Applied Mathematics and Optimization © 2022 The Author(s), under exclusive licence to Springer Science Business Media, LLC, part of Springer Nature. All rights reserved. |
| spellingShingle | Science::Mathematics Robust Control Stochastic Linear-Quadratic Control Han, Bingyan Pun, Chi Seng Wong, Hoi Ying Robust time-inconsistent stochastic linear-quadratic control with drift disturbance |
| title | Robust time-inconsistent stochastic linear-quadratic control with drift disturbance |
| title_full | Robust time-inconsistent stochastic linear-quadratic control with drift disturbance |
| title_fullStr | Robust time-inconsistent stochastic linear-quadratic control with drift disturbance |
| title_full_unstemmed | Robust time-inconsistent stochastic linear-quadratic control with drift disturbance |
| title_short | Robust time-inconsistent stochastic linear-quadratic control with drift disturbance |
| title_sort | robust time inconsistent stochastic linear quadratic control with drift disturbance |
| topic | Science::Mathematics Robust Control Stochastic Linear-Quadratic Control |
| url | https://hdl.handle.net/10356/163191 |
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