Dynamic Network Model of Managing Investment Portfolio under Random Stepwise Changes in Volatilities of Financial Assets

Abstract

The problem of managing a portfolio of risk (ordinary shares) and no-risk (bank account, reliable bonds) investments was considered. The portfolio model was described in the state space by a system of stochastic differential (or difference) equations with random stepwise parameters. Management of the investment portfolio was formulated as a dynamic problem of tracking some reference portfolio with an investor-defined yield. An approach to determining the optimal management strategy with quadratic criterion-based feedback was proposed. Results of numerical modeling were presented.