Jump-Diffusion Risk-Sensitive Asset Management II: Jump-Diffusion Factor Model

Mark Davis; Sebastien Lleo

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arXiv · 1102.5126

Jump-Diffusion Risk-Sensitive Asset Management II: Jump-Diffusion Factor Model

Mark Davis·Sebastien Lleo

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Abstract

In this article we extend earlier work on the jump-diffusion risk-sensitive asset management problem [SIAM J. Fin. Math. (2011) 22-54] by allowing jumps in both the factor process and the asset prices, as well as stochastic volatility and investment constraints. In this case, the HJB equation is a partial integro-differential equation (PIDE). By combining viscosity solutions with a change of notation, a policy improvement argument and classical results on parabolic PDEs we prove that the HJB PIDE admits a unique smooth solution. A verification theorem concludes the resolution of this problem.

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Mark Davis, Sebastien Lleo. 2011-02-24. Jump-Diffusion Risk-Sensitive Asset Management II: Jump-Diffusion Factor Model. https://arxiv.org/abs/1102.5126

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