Dynamic Investment Portfolio Optimization under Constraints in the Financial Market with Regime Switching using Model Predictive Control
Portfolio Management
2014-10-07 v1
Abstract
In this work, we consider the optimal portfolio selection problem under hard constraints on trading volume amounts when the dynamics of the risky asset returns are governed by a discrete-time approximation of the Markov-modulated geometric Brownian motion. The states of Markov chain are interpreted as the states of an economy. The problem is stated as a dynamic tracking problem of a reference portfolio with desired return. We propose to use the model predictive control (MPC) methodology in order to obtain feedback trading strategies. Our approach is tested on a set of a real data from the radically different financial markets: the Russian Stock Exchange MICEX, the New York Stock Exchange and the Foreign Exchange Market (FOREX).
Keywords
Cite
@article{arxiv.1410.1136,
title = {Dynamic Investment Portfolio Optimization under Constraints in the Financial Market with Regime Switching using Model Predictive Control},
author = {Vladimir Dombrovskii and Tatyana Obyedko},
journal= {arXiv preprint arXiv:1410.1136},
year = {2014}
}