NDLI: A risk-sensitive stochastic control approach to an optimal investment problem with partial information

Content Provider	Springer Nature Link
Author	Hata, Hiroaki Iida, Yasunari
Copyright Year	2006
Abstract	We consider an infinite time horizon optimal investment problem where an investor tries to maximize the probability of beating a given index. From a mathematical viewpoint, this is a large deviation probability control problem. As shown by Pham (in Syst. Control Lett. 49: 295–309, 2003; Financ. Stoch. 7: 169–195, 2003), its dual problem can be regarded as an ergodic risk-sensitive stochastic control problem. We discuss the partial information counterpart of Pham (in Syst. Control Lett. 49: 295–309, 2003; Financ. Stoch. 7: 169–195, 2003). The optimal strategy and the value function for the dual problem are constructed by using the solution of an algebraic Riccati equation. This equation is the limit equation of a time inhomogeneous Riccati equation derived from a finite time horizon problem with partial information. As a result, we obtain explicit representations of the value function and the optimal strategy for the problem. Furthermore we compare the optimal strategies and the value functions in both full and partial information cases.
Ending Page	426
Page Count	32
Starting Page	395
File Format	PDF
ISSN	09492984
e-ISSN	14321122
Journal	Finance and Stochastics
Issue Number	3
Volume Number	10
Language	English
Publisher	Springer-Verlag
Publisher Date	2006-08-11
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Filtering Finance /Banking Probability Theory and Stochastic Processes Large deviations Quantitative Finance Partial information Optimal investment Risk-sensitive control Infinite time horizon Riccati equations Statistics for Business/Economics/Mathematical Finance/Insurance Optimal stochastic control Economic Theory
Content Type	Text
Resource Type	Article
Subject	Finance Statistics and Probability Statistics, Probability and Uncertainty

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