Risk-sensitive investment in a finite-factor model

Grzegorz Andruszkiewicz, Mark H. A. Davis and Sebastien Lleo

Papers from arXiv.org

Abstract: A new jump diffusion regime-switching model is introduced, which allows for linking jumps in asset prices with regime changes. We prove the existence and uniqueness of the solution to the risk-sensitive asset management criterion maximisation problem in this setting. We provide an ODE for the optimal value function, which may be efficiently solved numerically. Relevant probability measure changes are discussed in the appendix. The approach of Klebaner and Lipster (2014) is used to prove the martingale property of the relevant density processes.

Date: 2014-07, Revised 2016-01
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Citations: View citations in EconPapers (2)

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