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?

Sequential δ-optimal consumption and investment for stochastic volatility markets with unknown parameters

Theory of Probability and Its Applications. 2016. Vol. 60. No. 4. P. 533–560.
Berdjane B., Pergamenschikov S.

We consider an optimal investment and consumption problem for a Black-Scholes financial market with stochastic volatility and unknown stock price appreciation rate. The volatility parameter is driven by an external economic factor modeled as a diffusion process of Ornstein- Uhlenbeck type with unknown drift. We use the dynamical programming approach and find an optimal financial strategy which depends on the drift parameter. To estimate the drift coefficient we observe the economic factor Y in an interval [0, T0] for fixed T0 > 0, and use sequential estimation. We show that the consumption and investment strategy calculated through this sequential procedure is δ-optimal. 

Language: English
DOI
Keywords: stochastic volatilitysequential analysisHamilton-Jacobi-Bellman equationsBlack-Scholes market modelOptimal consumption and investmentTruncate sequential estimate
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