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

DOI10.1080/07362994.2014.945038MaRDI QIDQ2937458zbMATH OpenOpenAlexFDO

Authors Amogh Deshpande

Publication date 9 January 2015

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

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

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)

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.

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Cites work

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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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