2025/04/15 by Jeonggyu Huh, Jaegi Jeon, Huh, Jeonggyu +5 · 1 voice · 3 citations
Computer Science · Decision Sciences · Economics, Econometrics and Finance · #Advanced Bandit Algorithms Research #Computational Finance (q-fin.CP) #FOS: Economics and business #Portfolio Management (q-fin.PM) #Risk and Portfolio Optimization #Stochastic Gradient Optimization Techniques #q-fin.CP #q-fin.PM
paper · pdf · doi:10.48550/arxiv.2504.11116
openalex publication_date 2025/04/15 · arxiv published 2025/04/15 · arxiv updated 2025/09/10 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We introduce the Pontryagin-Guided Direct Policy Optimization (PG-DPO) framework for high-dimensional continuous-time portfolio choice. Our approach combines Pontryagin's Maximum Principle (PMP) with backpropagation through time (BPTT) to directly inform neural network-based policy learning, enabling accurate recovery of both myopic and intertemporal hedging demands--an aspect often missed by existing methods. Building on this, we develop the Projected PG-DPO (P-PGDPO) variant, which achieves nearoptimal policies with substantially improved efficiency. P-PGDPO leverages rapidly stabilizing costate estimates from BPTT and analytically projects them onto PMP's first-order conditions, reducing training overhead while improving precision. Numerical experiments show that PG-DPO matches or exceeds the accuracy of Deep BSDE, while P-PGDPO delivers significantly higher precision and scalability. By explicitly incorporating time-to-maturity, our framework naturally applies to finite-horizon problems and captures horizon-dependent effects, with the long-horizon case emerging as a stationary special case.