Distorted probability operator for dynamic portfolio optimization in times of socio-economic crisis
[ 1 ] Instytut Logistyki, Wydział Inżynierii Zarządzania, Politechnika Poznańska | [ P ] employee
2023
scientific article
english
- Probability distortion
- Markov decision processes
- Dynamic programming
- Risk management
- Mathematical finance
EN A robust optimal control of discrete time Markov chains with finite terminal T and bounded costs or wealth using probability distortion is studied. The time inconsistency of these distortion operators and hence its lack of dynamic programming are discussed. Due to that, dynamic versions of these operators are introduced, and its availability for dynamic programming is demonstrated. Based on dynamic programming algorithm, existence of the optimal policy is justified and an application of the theory to portfolio optimization along with a numerical study is also presented.
09.12.2022
1043 - 1060
CC BY (attribution alone)
czasopismo hybrydowe
final published version
09.12.2022
at the time of publication
public
70
1,4