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Risk-Sensitive Control and an Optimal Investment Model

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  • W. H. Fleming
  • S. J. Sheu
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    Abstract

    We consider an optimal investment model in which the goal is to maximize the long-term growth rate of expected utility of wealth. In the model, the mean returns of the securities are explicitly affected by the underlying economic factors. The utility function is HARA. The problem is reformulated as an infinite time horizon risk-sensitive control problem. We study the dynamic programming equation associated with this control problem and derive some consequences of the investment problem. Copyright Blackwell Publishers, Inc..

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Mathematical Finance.

    Volume (Year): 10 (2000)
    Issue (Month): 2 ()
    Pages: 197-213

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    Handle: RePEc:bla:mathfi:v:10:y:2000:i:2:p:197-213

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627

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    Cited by:
    1. Thomas Knispel, 2012. "Asymptotics of robust utility maximization," Papers 1203.1191, arXiv.org.
    2. Vladimir Cherny & Jan Obloj, 2013. "Optimal portfolios of a long-term investor with floor or drawdown constraints," Papers 1305.6831, arXiv.org.
    3. Azzato, Jeffrey & Krawczyk, Jacek B & Sissons, Christopher, 2011. "On loss-avoiding lump-sum pension optimization with contingent targets," Working Paper Series 1532, Victoria University of Wellington, School of Economics and Finance.
    4. Akihiko Inoue & Yumiharu Nakano, 2005. "Optimal long term investment model with memory," Papers math/0506621, arXiv.org, revised May 2006.
    5. Tadashi Hayashi & Jun Sekine, 2011. "Risk-sensitive Portfolio Optimization with Two-factor Having a Memory Effect," Asia-Pacific Financial Markets, Springer, vol. 18(4), pages 385-403, November.
    6. Vladimir Cherny & Jan Obloj, 2011. "Portfolio optimisation under non-linear drawdown constraints in a semimartingale financial model," Papers 1110.6289, arXiv.org, revised Apr 2013.
    7. Jan Palczewski & Lukasz Stettner, 2007. "Growth-optimal portfolios under transaction costs," Papers 0707.3198, arXiv.org.
    8. Tomasz R. Bielecki & Igor Cialenco & Marcin Pitera, 2013. "Dynamic Limit Growth Indices in Discrete Time," Papers 1312.1006, arXiv.org, revised Jul 2014.
    9. Traian A. Pirvu & Gordan Zitkovic, 2007. "Maximizing the Growth Rate under Risk Constraints," Papers 0706.0480, arXiv.org.

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