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Dynamic asset management with risk-sensitive criterion and non-negative factor constraints: a differential game approach

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Title Dynamic asset management with risk-sensitive criterion and non-negative factor constraints: a differential game approach
 
Creator BAGCHI, A
KUMAR, KS
 
Subject oblique reflection
equations
domains
risk-sensitive control
portfolio optimization
reflecting diffusion
skorohod problem
 
Description In this paper, we study continuous time portfolio optimization problem where individual securities are directly affected by economic factors. We consider the risk-sensitive criterion function as is familiar in the robust control literature. This is the natural setting for studying the infinite horizon case of the control problem arising in portfolio optimization. Our result extends earlier works by imposing explicitly the non-negativity constraint on the economic factors. This is achieved by using reflected diffusions. The risk-sensitive control problem with reflected diffusion is then converted into a stochastic differential game. The lower value of this game leads immediately to the desired optimal strategy. Also we prove the existence of unique strong solution to reflected diffusions with bounded measurable drift coefficient which is the first result of its kind for higher dimensional reflected diffusions.
 
Publisher TAYLOR & FRANCIS LTD
 
Date 2011-08-30T22:54:47Z
2011-12-26T12:59:13Z
2011-12-27T05:50:14Z
2011-08-30T22:54:47Z
2011-12-26T12:59:13Z
2011-12-27T05:50:14Z
2009
 
Type Article
 
Identifier STOCHASTICS-AN INTERNATIONAL JOURNAL OF PROBABILITY AND STOCHASTIC PROCESSES, 81(5), 503-530
1744-2508
http://dx.doi.org/10.1080/17442500902774917
http://dspace.library.iitb.ac.in/xmlui/handle/10054/12494
http://hdl.handle.net/10054/12494
 
Language en