Publication Date:
2012-09-24
Description:
We consider the problem of maximization of expected terminal power utility (risk sensitive criterion). The underlying market model is a regime-switching diffusion model where the regime is determined by an unobservable factor process forming a finite state Markov process. The main novelty is due to the fact that prices are observed and the portfolio is rebalanced only at random times corresponding to a Cox process where the intensity is driven by the unobserved Markovian factor process as well. This leads to a more realistic modeling for many practical situations, like in markets with liquidity restrictions; on the other hand it considerably complicates the problem to the point that traditional methodologies cannot be directly applied. The approach presented here is specific to the power-utility. For log-utilities a different approach is presented in Fujimoto et al. (Preprint, 2012 ). Content Type Journal Article Pages 1-40 DOI 10.1007/s00245-012-9180-2 Authors Kazufumi Fujimoto, Corporate Risk Management Division, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Marunouchi 2-7-1, 100-8388 Chiyoda-ku, Tokyo, Japan Hideo Nagai, Division of Mathematical Science for Social Systems, Graduate School of Engineering Science, Osaka University, Machikaneyama 1-3, 560-8531 Toyonaka, Osaka, Japan Wolfgang J. Runggaldier, Dipartimento di Matematica Pura ed Applicata, Università di Padova, Via Trieste 63, 35121 Padova, Italy Journal Applied Mathematics & Optimization Online ISSN 1432-0606 Print ISSN 0095-4616
Print ISSN:
0095-4616
Electronic ISSN:
1432-0606
Topics:
Mathematics
