Optimal Investment with Forward Preferences and uncertain parameters under binomial market model

Given a financial market environment, an agent aims to solve her optimal investment strategy. This project is a continuation of “forward and backward preferences” proposed in IGL and IRL last year. In the previous project, under the binomial market model, comparing to the classical backward approach, we showed substantial improvement in both computation time and cumulative earning when the forward approach, introduced by Musiela and Zariphopoulou (2008), is numerically implemented to the historical data of S&P500. Although the agent could update the real-time market information at the end of each period due to the forward nature, she inevitably encounters model uncertainty in each period. Inspired by Chong and Liang (2019) in continuous-time setting, this project studies the optimal investment problem with forward preferences and uncertain parameters under the binomial market model.

Students: Norman Dewantoro, Rhyxian Lim, Suyoung Park, Himanshi Sharma

Supervisor: Alfred Chong