Dual control Monte-Carlo method for tight bounds of value function in regime switching utility maximization

Jingtang Ma, Wenyuan Li, Harry Zheng
2017 European Journal of Operational Research  
In this paper we study the dual control approach for the optimal asset allocation problem in a continuous-time regime-switching market. We find the lower and upper bounds of the value function that is a solution to a system of fully coupled nonlinear partial differential equations. These bounds can be tightened with additional controls to the dual process. We suggest a Monte-Carlo algorithm for computing the tight lower and upper bounds and show the method is effective with a variety of utility
more » ... functions, including power, non-HARA and Yaari utilities. The latter two utilities are beyond the scope of any current methods available in finding the value function. MSC 2010: 49L20, 90C46, 65C05
doi:10.1016/j.ejor.2017.04.056 fatcat:r6g2qd2vcfharn5dt2ykj3u6sm