Expected Power-Utility Maximization Under Incomplete Information and with Cox-Process Observations

Expected Power-Utility Maximization Under Incomplete Information and with Cox-Process Observations 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 ). http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematics and Optimization Springer Journals

Expected Power-Utility Maximization Under Incomplete Information and with Cox-Process Observations

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Publisher
Springer-Verlag
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Mathematics; Calculus of Variations and Optimal Control; Optimization; Systems Theory, Control; Theoretical, Mathematical and Computational Physics; Mathematical Methods in Physics; Numerical and Computational Physics
ISSN
0095-4616
eISSN
1432-0606
D.O.I.
10.1007/s00245-012-9180-2
Publisher site
See Article on Publisher Site

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