Filtering and portfolio optimization with stochastic unobserved drift in asset returns

Jean Pierre Fouque, Andrew Papanicolaou, Ronnie Sircar

Research output: Contribution to journalArticle


We consider the problem of filtering and control in the setting of portfolio optimization in financial markets with random factors that are not directly observable. The example that we present is a commodities portfolio where yields on futures contracts are observed with some noise. Through the use of perturbation methods, we are able to show that the solution to the full problem can be approximated by the solution of a solvable HJB equation plus an explicit correction term.

Original languageEnglish (US)
Pages (from-to)935-953
Number of pages19
JournalCommunications in Mathematical Sciences
Issue number4
Publication statusPublished - 2015



  • Asymptotic approximations
  • Filtering
  • Hamilton-Jacobi-Bellman equation
  • Portfolio optimization

ASJC Scopus subject areas

  • Mathematics(all)
  • Applied Mathematics

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