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arXiv · 1406.3112

Martingale approach to optimal portfolio-consumption problems in Markov-modulated pure-jump models

Oscar Lopez·Rafael Serrano
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Abstract

We study optimal investment strategies that maximize expected utility from consumption and terminal wealth in a pure-jump asset price model with Markov-modulated (regime switching) jump-size distributions. We give sufficient conditions for existence of optimal policies and find closed-form expressions for the optimal value function for agents with logarithmic and fractional power (CRRA) utility in the case of two-state Markov chains. The main tools are convex duality techniques, stochastic calculus for pure-jump processes and explicit formulae for the moments of telegraph processes with Markov-modulated random jumps.

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Oscar Lopez, Rafael Serrano. 2014-06-12. Martingale approach to optimal portfolio-consumption problems in Markov-modulated pure-jump models. https://arxiv.org/abs/1406.3112

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