The Study On Controlling The Lost Of A Dynamic Investment Model

This paper studies a problem that with control on the lost of a dynamic investment model.We take the worst situation that may happen and cause the portfolio’s lsot into consideration.We make the effect cause by lost be part of the ultimate utility function. Then we can solve the problem by converting it to the hedging portfolio of a European option on a dynamic mutual fund that can be replicated by market primary assets.We can get a closed-form solution when the price of all the assets price follow a multivariate geometric Brownian motion and use the HARA as the utility function by applying the Black-Scholes formula.This paper also provides a method to use the option pricing model to solve the investment problem.