Please use this identifier to cite or link to this item:
http://hdl.handle.net/10397/89350
Title: | Risk sensitive portfolio optimization with default contagion and regime-switching | Authors: | Bo, L Liao, H Yu, X |
Issue Date: | 2019 | Source: | SIAM journal on control and optimization, 2019, v. 57, no. 1, p. 366-401 | Abstract: | We study an open problem of risk-sensitive portfolio allocation in a regime-switching credit market with default contagion. The state space of the Markovian regime-switching process is assumed to be a countably infinite set. To characterize the value function, we investigate the corresponding recursive infinite-dimensional nonlinear dynamical programming equations (DPEs) based on default states. We propose working in the following procedure: Applying the theory of monotone dynamical systems, we first establish the existence and uniqueness of classical solutions to the recursive DPEs by a truncation argument in the finite state space. The associated optimal feedback strategy is characterized by developing a rigorous verification theorem. Building upon results in the first stage, we construct a sequence of approximating risk-sensitive control problems with finite states and prove that the resulting smooth value functions will converge to the classical solution of the original system of DPEs. The construction and approximation of the optimal feedback strategy for the original problem are also thoroughly discussed. | Keywords: | Countably infinite states Default contagion Recursive dynamical programming equations Regime switching Risk-sensitive control Verification theorems |
Publisher: | Society for Industrial and Applied Mathematics | Journal: | SIAM journal on control and optimization | ISSN: | 0363-0129 | EISSN: | 1095-7138 | DOI: | 10.1137/18M1166274 | Rights: | © 2019, Society for Industrial and Applied Mathematics. Posted with permission of the publisher. The following publication Bo, L., Liao, H., & Yu, X. (2019). Risk sensitive portfolio optimization with default contagion and regime-switching. SIAM Journal on Control and Optimization, 57(1), 366-401 is available at https://dx.doi.org/10.1137/18M1166274 |
Appears in Collections: | Journal/Magazine Article |
Files in This Item:
File | Description | Size | Format | |
---|---|---|---|---|
18m1166274.pdf | 481.73 kB | Adobe PDF | View/Open |
Page views
51
Last Week
1
1
Last month
Citations as of Apr 21, 2024
Downloads
15
Citations as of Apr 21, 2024
SCOPUSTM
Citations
8
Citations as of Apr 26, 2024
WEB OF SCIENCETM
Citations
8
Citations as of Apr 25, 2024
Google ScholarTM
Check
Altmetric
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.