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STOCHASTIC PARABOLIC MODEL FOR INFINITE-DIMENSIONAL FORWOARD RATE AND MEAN-VARIANCE OPTIMAL CONTROL
Shin Ichi Aihara* Arunabha Bagchi**
* Tokyo University of Science, Suwa, 5000-1 Toyohira, Chino,
Nagano, Japan E-mail:aihara@ss.suwa.sut.ac.jp
** Financial Engineering Labiratory, CTIT, University of
Twente, P.O. Box 217, 7500AE Enschede, The Netherlands
E-mail:bagchi@math.utwente.nl
We consider the term structure modeling by using a appropriate stochastic parabolic system with boundary noises. After finding a sufficient condition for the no arbitrage opportunity, we solve the mean-variance optimal control problem in the incomplete market.
Keywords: Stochastic parabolic systems, term structure, arbitrage-free, optimal control, self-financing, short rate
Session slot T-Th-E02: Control of Stochastic Systems/Area code 3d : Stochastic Systems
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