Mathematical Finance, Stochastic Analysis, and Machine Learning By Marcin Pitera: Discrete-Time Risk Sensitive Portfolio Optimization with Proportional Transaction Costs

Speaker:

Marcin Pitera, Jagiellonian University

Title:

Discrete-Time Risk Sensitive Portfolio Optimization with Proportional Transaction Costs

Abstract:

In this talk we discuss a discrete-time risk sensitive portfolio optimisation over a long time horizon with proportional transaction costs. After providing a gentle introduction into risk-sensitive portfolio optimisation, we show that within the log-return i.i.d. framework the solution to a suitable Bellman equation exists under minimal assumptions and can be used to characterise the optimal strategies for both risk-averse and risk-seeking cases. Moreover, using numerical examples, we show how a Bellman equation analysis can be used to construct or refine optimal trading strategies in the presence of transaction costs.

 

Mathematical Finance, Stochastic Analysis, and Machine Learning