Chapter

Stochastic Optimal Control

Tomas Björk

in Arbitrage Theory in Continuous Time

Second edition

Published in print March 2004 | ISBN: 9780199271269
Published online October 2005 | e-ISBN: 9780191602849 | DOI: http://dx.doi.org/10.1093/0199271267.003.0019

Series: Oxford Finance Series

Stochastic Optimal Control

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This chapter analyses the stochastic optimal control problem. The problem considers an economic agent over a fixed time interval [0, T]. At time t = 0, the agent is endowed with initial wealth x0, and the agent’s problem is how to allocate investments and consumption over the given time horizon. The agent must choose a portfolio-consumption strategy that will maximize the total utility over [0, T]. Practice exercises are included.

Keywords: stochastic optimal control problem; portfolio consumption; investment; dynamic programming

Chapter.  12888 words. 

Subjects: Financial Markets

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