Risk sensitive control of finite state Markov chains in discrete time, with applications to portfolio management
type: Item
instance of: scholarly article
title: Risk sensitive control of finite state Markov chains in discrete time, with applications to portfolio management
zbMATH Open document ID: 0959.91029
author: Stanley R. Pliska
author: Tomasz R. Bielecki
author: Daniel Hernández-Hernández
published in: Mathematical Methods of Operations Research
publication date: 2000-05-17T00:00:00Z
review text: This paper extends standard dynamic programming results for the risk sensitive control of discrete time Markov chains to a new class of models. The state space is only finite, but the assumptions about the Markov transition matrix are less restrictive. The results are applied to the financial problem of managing a portfolio of assets. These are affected by Markovian factors and the investor maximizing the portfolio's risk adjusted growth rate. This paper is organized in 6 sections. After the introduction (section 1), the optimal risk sensitive control of finite state Markov chains is described in section 2. In section 3, the discrete time risk sensitive optimal portfolio problem is formulated. In section 4, the theory of section 2 is applied to obtain various fundamental results for the financial application. Numerical examples are regarded in section 5. Finally, concluding remarks follow in section 6.
reviewed by: Klaus Ehemann
Mathematics Subject Classification ID: 91B28
Mathematics Subject Classification ID: 90C40
zbMATH DE Number: 1370331
zbMATH Keywords: risk sensitive Markov decision processes
zbMATH Keywords: portfolio optimization
zbMATH Keywords: factor modelling
MaRDI profile type: Publication
full work available at URL: s001860050094
OpenAlex ID: W2052626772
DOI: 10.1007/S001860050094
description: scientific article; zbMATH DE number 1370331