Adaptive-robust portfolio optimisation

Journal article

Abstract:: An agent solves an exponential utility maximisation problem that is robust to parameter misspecification and where the optimal strategy continuously adapts to new information. The agent invests in a risk-free asset and in risky stocks whose prices follow geometric diffusion processes. The agent does not know the drift parameters of the stock price dynamics, so she considers a set of alternative measures to make the investment problem robust to model misspecification and employs a continuous-time estimator to learn the value of the drift parameters as new information arrives during the investment horizon. For the two risky asset case, the agent’s value function is characterised as the solution to a non-linear PDE. We show that the value function has a stochastic representation and use it to analyse the optimal adaptive-robust strategy and to compare it with various benchmarks.

Files:: Bhudisaksang_et_al_2025_Adaptive_robust_portfolio.pdf

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Language:: English
Keywords:: algorithmic trading

dynamic programming

adaptive-robust control

model uncertainty

stochastic control

time-consistency

online learning
Pubs id:: 2343488
Local pid:: pubs:2343488
Deposit date:: 2025-12-03
ARK identifier:: ark:/29072/ora_a51b77815620402bb02eccba15acc2fe

Copyright holder:: Bhudisaksang et al
Rights statement:: © 2025 The Authors. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

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