13-DynProg.pptVIP

MSE 345, Primbs Dynamic Programming * Portfolio Dynamics: Portfolio Weights: Risk Free Risky Portfolio Dynamics: Define the Value Function: Dynamic Programming V(P,t) is the maximum utility that you can achieve at time T given that you are at time t with portfolio wealth P. At time T, the value function is This serves as a boundary condition for the problem. Dynamic Programming “Solve the problem backwards” This is the basic “backward” recursion. We can take it to the continuous limit... P t Dt By iterated expectation Derivation the Hamilton Jacobi Bellman Equation: HJB Equation: Let’s take th