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Nonparametric statistical inference for stochastic optimal control problems and its applications for financial investment

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  • Liu, Yang
  • Liang, Yanzi
  • Lan, Xinchen
  • Lu, Zheng

Abstract

Against a backdrop of financial decision-making, this study examines nonparametric statistical inference problems in stochastic optimal control problems. First, we construct a nonparametric estimation model using the wavelet estimation method for drift and diffusion coefficients. In this study, we focus on stochastic linear–quadratic (SLQ) problems, solved using Riccati equations, and apply this to a cash management problem within the linear–quadratic framework. The results show the effectiveness of the wavelet method using a numerical case.

Suggested Citation

  • Liu, Yang & Liang, Yanzi & Lan, Xinchen & Lu, Zheng, 2024. "Nonparametric statistical inference for stochastic optimal control problems and its applications for financial investment," Finance Research Letters, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324003970
    DOI: 10.1016/j.frl.2024.105367
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    References listed on IDEAS

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