Portfolio management with stochastic interest rates and inflation ambiguity (Q481372)

The authors consider a model of portfolio choice with stock, bond and cash in a framework in which model uncertainty prevails to which agents are averse. As a consequence, portfolios are selected according to a supinf criterion, where the inf refers to the ambiguity dimension and sup to portfolio variables. In particular, Equations (6)--(9) describe the diffusion model under some reference probability measure \(\mathbb P\) where agents look at prices from the perspective of a family \(\mathbb P^e\) of absolutely continuous probability measures with \(e\) a suitable progressively measurable process. Thus, ambiguity affects the drift part of the asset price processes. The authors obtain closed-form solutions and provide some numerical analysis.