This paper investigates the situation in Merton (1969) model that volatility is a constant rather than stochastic process, then points out this misspecification since it doesn't match real market. Next, HJB equation with derived through control, thereby calibrate misspecification.

It is a matter of common knowledge that traditional Markowitz optimization based on sample means and covariances performs poorly in practice. For this reason, diverse attempts were made to improve performance of portfolio optimization. In this paper, we investigate three popular portfolio selection models built upon classical meanvariance theory. The first model is an extension of the tradition...