Expected Power-Utility Maximization Under Incomplete Information and with Cox-Process Observations
- Bank of Tokyo-Mitsubishi UFJ, Ltd., Corporate Risk Management Division (Japan)
- Osaka University, Division of Mathematical Science for Social Systems, Graduate School of Engineering Science (Japan)
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).
- OSTI ID:
- 22156532
- Journal Information:
- Applied Mathematics and Optimization, Vol. 67, Issue 1; Other Information: Copyright (c) 2013 Springer Science+Business Media New York; Article Copyright (c) 2012 Springer Science+Business Media, LLC; Country of input: International Atomic Energy Agency (IAEA); ISSN 0095-4616
- Country of Publication:
- United States
- Language:
- English
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