Asymptotics of the probability minimizing a "down-side" risk

Hiroaki Hata, Hideo Nagai and Shuenn-Jyi Sheu

Papers from arXiv.org

Abstract: We consider a long-term optimal investment problem where an investor tries to minimize the probability of falling below a target growth rate. From a mathematical viewpoint, this is a large deviation control problem. This problem will be shown to relate to a risk-sensitive stochastic control problem for a sufficiently large time horizon. Indeed, in our theorem we state a duality in the relation between the above two problems. Furthermore, under a multidimensional linear Gaussian model we obtain explicit solutions for the primal problem.

Date: 2010-01
New Economics Papers: this item is included in nep-rmg
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Published in Annals of Applied Probability 2010, Vol. 20, No. 1, 52-89

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1001.2131

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