A maximum principle for relaxed stochastic control of linear SDEs with application to bond portfolio optimization

Daniel Andersson; Boualem Djehiche

doi:10.1007/s00186-010-0320-7

A maximum principle for relaxed stochastic control of linear SDEs with application to bond portfolio optimization

Daniel Andersson, Boualem Djehiche

Mathematics

Research output: Contribution to journal › Article › peer-review

Abstract

We study relaxed stochastic control problems where the state equation is a one dimensional linear stochastic differential equation with random and unbounded coefficients. The two main results are existence of an optimal relaxed control and necessary conditions for optimality in the form of a relaxed maximum principle. The main motivation is an optimal bond portfolio problem in a market where there exists a continuum of bonds and the portfolio weights are modeled as measure-valued processes on the set of times to maturity.

Original language	English (US)
Pages (from-to)	273-310
Number of pages	38
Journal	Mathematical Methods of Operations Research
Volume	72
Issue number	2
DOIs	https://doi.org/10.1007/s00186-010-0320-7
State	Published - Oct 2010

Keywords

Bond portfolio
H -function
Maximum principle
Relaxed control
Stochastic control

ASJC Scopus subject areas

Software
General Mathematics
Management Science and Operations Research

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10.1007/s00186-010-0320-7

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AB - We study relaxed stochastic control problems where the state equation is a one dimensional linear stochastic differential equation with random and unbounded coefficients. The two main results are existence of an optimal relaxed control and necessary conditions for optimality in the form of a relaxed maximum principle. The main motivation is an optimal bond portfolio problem in a market where there exists a continuum of bonds and the portfolio weights are modeled as measure-valued processes on the set of times to maturity.

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KW - H -function

KW - Maximum principle

KW - Relaxed control

KW - Stochastic control

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A maximum principle for relaxed stochastic control of linear SDEs with application to bond portfolio optimization

Abstract

Keywords

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