Sufficient Stochastic Maximum Principle for the Optimal Control of Semi-Markov Modulated Jump-Diffusion with Application to Financial Optimization

DOI10.1080/07362994.2014.945038zbMATH Open1302.93237arXiv1407.3256OpenAlexW2062458425MaRDI QIDQ2937458FDOQ2937458

Authors: Amogh Deshpande 

Publication date: 9 January 2015

Published in: Stochastic Analysis and Applications (Search for Journal in Brave)

Abstract: The finite state semi-Markov process is a generalization over the Markov chain in which the sojourn time distribution is any general distribution. In this article we provide a sufficient stochastic maximum principle for the optimal control of a semi-Markov modulated jump-diffusion process in which the drift, diffusion and the jump kernel of the jump-diffusion process is modulated by a semi-Markov process. We also connect the sufficient stochastic maximum principle with the dynamic programming equation. We apply our results to finite horizon risk-sensitive control portfolio optimization problem and to a quadratic loss minimization problem.

Full work available at URL: https://arxiv.org/abs/1407.3256

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zbMATH Keywords

dynamic programmingrisk-sensitive controlquadratic loss minimizationsemi-Markov modulated jump diffusionssufficient stochastic maximum principle

Mathematics Subject Classification ID

Dynamic programming (90C39) Portfolio theory (91G10) Applications of functional analysis in optimization, convex analysis, mathematical programming, economics (46N10) Linear-quadratic optimal control problems (49N10) Applications of stochastic analysis (to PDEs, etc.) (60H30) Optimal stochastic control (93E20)

Cites Work

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• The Stochastic Maximum Principle for Linear, Convex Optimal Control with Random Coefficients
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• Sufficient stochastic maximum principle for the optimal control of jump diffusions and applications to finance
• Markowitz's Mean-Variance Portfolio Selection with Regime Switching: A Continuous-Time Model
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• Comparisons for backward stochastic differential equations on Markov chains and related no-arbitrage conditions
• Risk Minimizing Option Pricing in a Regime Switching Market
• Risk Minimizing Option Pricing in a Semi-Markov Modulated Market

Cited In (4)

• Dynamic programming for semi-Markov modulated SDEs
• Infinite horizon optimal control of mean-field delay system with semi-Markov modulated jump-diffusion processes
• A risk-sensitive stochastic maximum principle for optimal control of jump diffusions and its applications
• The stochastic maximum principle for a jump-diffusion mean-field model involving impulse controls and applications in finance

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