Year: 2026
Type: preprint
Abstract: We solve the entropy-regularized mean--variance portfolio problem under Bayesian drift uncertainty. We combine continuous-time Bayesian filtering with stochastic policy optimization; the main finding is negative: the two mechanisms are orthogonal. Posterior dynamics are policy-independent, so entropy regularization cannot accelerate learning about the unknown drift. The mean control is identical to the deterministic Bayesian Markowitz feedback, and entropy enters only through policy variance. On the technical side, the optimal policy is Gaussian, the value function is quadratic in wealth, and the leading belief-dependent coefficient closes in exponential form. The framework recovers both parent models as limiting cases.
Source: arXiv (Cornell University)
Author: Au, Andy
Institution: Boston University
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7130738853
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