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A Stochastic Maximum Principle for a Markov Regime-Switching Jump-Diffusion Model with Delay and an Application to Finance

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  • Emel Savku

    (Middle East Technical University)

  • Gerhard-Wilhelm Weber

    (Middle East Technical University)

Abstract

We study a stochastic optimal control problem for a delayed Markov regime-switching jump-diffusion model. We establish necessary and sufficient maximum principles under full and partial information for such a system. We prove the existence–uniqueness theorem for the adjoint equations, which are represented by an anticipated backward stochastic differential equation with jumps and regimes. We illustrate our results by a problem of optimal consumption problem from a cash flow with delay and regimes.

Suggested Citation

  • Emel Savku & Gerhard-Wilhelm Weber, 2018. "A Stochastic Maximum Principle for a Markov Regime-Switching Jump-Diffusion Model with Delay and an Application to Finance," Journal of Optimization Theory and Applications, Springer, vol. 179(2), pages 696-721, November.
  • Handle: RePEc:spr:joptap:v:179:y:2018:i:2:d:10.1007_s10957-017-1159-3
    DOI: 10.1007/s10957-017-1159-3
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    References listed on IDEAS

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    1. Samuel N. Cohen & Robert J. Elliott, 2008. "Comparisons for backward stochastic differential equations on Markov chains and related no-arbitrage conditions," Papers 0810.0055, arXiv.org, revised Jan 2010.
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