Jump-Diffusion Risk-Sensitive Asset Management II: Jump-Diffusion Factor Model
Portfolio Management
2012-09-12 v2 Systems and Control
Optimization and Control
Computational Finance
Abstract
In this article we extend earlier work on the jump-diffusion risk-sensitive asset management problem [SIAM J. Fin. Math. (2011) 22-54] by allowing jumps in both the factor process and the asset prices, as well as stochastic volatility and investment constraints. In this case, the HJB equation is a partial integro-differential equation (PIDE). By combining viscosity solutions with a change of notation, a policy improvement argument and classical results on parabolic PDEs we prove that the HJB PIDE admits a unique smooth solution. A verification theorem concludes the resolution of this problem.
Cite
@article{arxiv.1102.5126,
title = {Jump-Diffusion Risk-Sensitive Asset Management II: Jump-Diffusion Factor Model},
author = {Mark Davis and Sebastien Lleo},
journal= {arXiv preprint arXiv:1102.5126},
year = {2012}
}