2014/10/05 by Vladimir Dombrovskii, Dombrovskii, Vladimir, Tatyana Obyedko +1 · 1 citation
Economics, Econometrics and Finance · #FOS: Economics and business #Market Dynamics and Volatility #Monetary Policy and Economic Impact #Portfolio Management (q-fin.PM) #Stochastic processes and financial applications #q-fin.PM
paper · pdf · doi:10.48550/arxiv.1410.1136
arxiv created 2014/10/05 · openalex publication_date 2014/10/05 · arxiv updated 2014/10/07 · openalex created_date 2021/02/01 · openalex updated_date 2026/07/28
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).