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A MARKOVIAN APPROXIMATED SOLUTION TO A PORTFOLIO MANAGEMENT PROBLEM

By Jacek B. Krawczyk

Abstract

A portfolio management problem is approximated through a Markov decision chain. The weak Euler scheme is applied to discretise the time evolution of a portfolio and an inverse distance method is used to describe the transition probabilities. The approximating Markov decision problem is solved by value iteration. Numerical solutions of varying degrees of accuracy to a few specific portfolio problems are obtained.

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