Jump-Diffusion Risk-Sensitive Benchmarked Asset Management

Mark Davis and Sebastien Lleo
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Mark Davis: Department of Mathematics, Imperial College London, London SW7 2AZ, England

Chapter 5 in Stochastic Programming:Applications in Finance, Energy, Planning and Logistics, 2013, pp 97-127 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn earlier works (Davis and Lleo, 2011b; Davis and Lleo, 2012), we showed that jump-diffusion risk-sensitive asset management problem without benchmark admit a unique classical (C1, 2) solution. In this article we extend these solution techniques to a benchmarked asset management problem with jumps. Benchmarked asset management problems are highly relevant to the financial industry: most investment funds have a benchmark, such as a financial index or a customized portfolio, against which their performance is assessed. We show here under two different sets of assumptions that the stochastic control problem associated with the benchmarked aset management problem admits a unique C1, 2 solution and that the optimal investment strategy exists and is unique.

Keywords: Stochastic Programming; Optimization with Scenarios; Finance; Energy; Production and Logistics Applications (search for similar items in EconPapers)
Date: 2013
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