“Down-Side Risk” Probability Minimization Problem with Cox-Ingersoll-Ross’s Interest Rates
With a bank account and a risky stock, both of which are affected by Cox-Ingersoll-Ross’s interest rates, we treat two “down-side risk” minimization problems of the large deviation probability for long-term investment. Explicit solutions of the problems are given by solving the associated risk-sensitive portfolio optimization problems.
KeywordsLarge deviations control Risk-sensitive stochastic control Bellman equation Long-term investment CIR-interest rates Bessel process with linear drift
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