Morton Topfer Chair Lecture: Perturbation Analysis for Investment Portfolios Under Partial Information with Expert Opinions

We cordially invite you to attend the Morton Topfer Chair Lecture on Tuesday, March 31, 2015 at 4:30 PM in LC 400.

Dr. Andrew Papanicolaou, lecturer from the School of Mathematics and Statistics at the University of Sydney will present the following talk:

Perturbation Analysis for Investment Portfolios Under Partial Information with Expert Opinions

Abstract: We analyze the Merton portfolio optimization problem when the growth rate is an unobserved Gaussian process whose level is estimated by filtering from observations of the stock price. We use the Kalman filter to track the hidden state(s) of expected returns given the history of asset prices, and then use this filter as input to a portfolio problem with an objective to maximize expected terminal utility. Our results apply for general concave utility functions. We incorporate time-scale separation in the fluctuations of the returns process, and utilize singular and regular perturbation analysis on the associated partial information HJB equation, which leads to an intuitive interpretation of the additional risk caused by uncertainty in expected returns. The results are an extension of the partially-informed investment strategies obtained by the Black-Litterman model, wherein investors' views on upcoming performance are incorporated into the optimization along with any degree of uncertainty that the investor may have in these views.

Short Bio: Was born in New York City in 1980, attended public school in New Jersey until age 13, then moved to California. Received Bachelors in applied mathematics from UC Santa Barbara in 2003, completed a masters in financial mathematics at University of Southern California in 2007, and submitted his PhD thesis entitled “New Methods in Theory and Applications of Nonlinear Filtering” at Brown University in May 2010. Was a postdoctoral fellow and lecturer at Princeton in the department of ORFE from 2010 to 2013, and since then has held a lecturer’s position at the University of Sydney in the School of Mathematics & Statistics. Currently is an IPAM fellow and participant in the workshop series “Broad Perspectives and New Directions in Financial Mathematics."

Refreshments will be served at the FRE Social beginning at 4:00PM. See attached poster for specific details. Mark your calendars.