English

Downside risk minimization via a large deviations approach

Probability 2012-05-04 v1

Abstract

We consider minimizing the probability of falling below a target growth rate of the wealth process up to a time horizon TT in an incomplete market model, and then study the asymptotic behavior of minimizing probability as TT\to\infty. This problem can be closely related to an ergodic risk-sensitive stochastic control problem in the risk-averse case. Indeed, in our main theorem, we relate the former problem concerning the asymptotics for risk minimization to the latter as its dual. As a result, we obtain an expression of the limit value of the probability as the Legendre transform of the value of the control problem, which is characterized as the solution to an H-J-B equation of ergodic type, in the case of a Markovian incomplete market model.

Keywords

Cite

@article{arxiv.1205.0672,
  title  = {Downside risk minimization via a large deviations approach},
  author = {Hideo Nagai},
  journal= {arXiv preprint arXiv:1205.0672},
  year   = {2012}
}

Comments

Published in at http://dx.doi.org/10.1214/11-AAP781 the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)

R2 v1 2026-06-21T20:58:08.282Z