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Title: Applications of robust optimal control to decision making in the presence of uncertainty
Author: Weston, Stephen Peter
ISNI:       0000 0001 3566 3013
Awarding Body: City University London
Current Institution: City, University of London
Date of Award: 2005
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This thesis is concerned with robustness of decision making in financial economics. Feedback control models developed in engineering are applied to three separate though linked problems in order to examine the role and impact of robustness in the creation and application of decision rules. Three problems are examined using robust optimal control techniques to evaluate the impact of robustness and stability in financial economic models. The first problem examines the use of linear models of robust optimal control in the pricing of castastrophe based derivatives and finds its relative performance to be superior to the popular jump diffusion and stochastic volatility models in the pricing of these emerging instruments. The novelty of the approach arises from the examination of the impact of robustness and stability of the pricing solution. The second problem involves robustness and stability of hedging. An alternative method of creating hedging rules is developed. The method is based on robust control Lyapunov functions that are simple, robust and stable in operation, yet in practice are not so conservative that they eliminate all trading gains. The third problem involves the development of robust control policies for managing risk, using non-linear robust optimal control techniques to provide clear evidence of superior performance of robust models when compared with existing VAR and EVT approaches to risk management. The novelty in the approach arises from the development of a simple and powerful risk management metric.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HB Economic Theory