Dynamic portfolio selection with process control

The risk inherent in the accumulation of investment capital depends on the true return distributions of the risky assets, the accuracy of estimated returns, and the investment strategy. This paper considers risk control with Value-at-Risk and Conditional Value-at-Risk, using control limits to determine times for portfolio rebalancing. Optimal strategies and control limits are determined for a geometric Brownian motion asset pricing model with random parameters. The approaches to risk control are applied to the fundamental problem of investment in stocks, bonds, and cash over time.