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Representation of homothetic forward performance processes via ergodic and infinite horizon quadratic BSDE in stochastic factor models

Research output: Working paper

Gechun Liang, Thaleia Zariphopoulou

Original languageEnglish
Publication statusPublished - 16 Nov 2015

Bibliographical note

30 pages

Documents

  • pdf

    1511.04863v1, 336 KB, application/pdf

    19/04/2016

King's Authors

Abstract

In an incomplete market, with incompleteness stemming from stochastic factors imperfectly correlated with the underlying stocks, we derive representations of homothetic forward investment performance processes (power, exponential and logarithmic). We develop a connection with ergodic and infinite horizon quadratic BSDE, and with a risk-sensitive control problem. We also develop a connection, for large trading horizons, with a family of traditional homothetic value function processes.

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