Article

Applied Mathematics and Optimization

, Volume 60, Issue 2, pp 275-296

Portfolio Optimization in a Semi-Markov Modulated Market

  • Mrinal K. GhoshAffiliated withDepartment of Mathematics, Indian Institute of Science Email author 
  • , Anindya GoswamiAffiliated withDepartment of Mathematics, Indian Institute of Science
  • , Suresh K. KumarAffiliated withDepartment of Mathematics, Indian Institute of Technology Bombay

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Abstract

We address a portfolio optimization problem in a semi-Markov modulated market. We study both the terminal expected utility optimization on finite time horizon and the risk-sensitive portfolio optimization on finite and infinite time horizon. We obtain optimal portfolios in relevant cases. A numerical procedure is also developed to compute the optimal expected terminal utility for finite horizon problem.

Keywords

Risk-sensitive control Semi-Markov process Fixed income securities Nonnegative factors