Risk Sensitive Control with Applications to Fixed Income Portfolio Management

  • Tomasz R. Bielecki
  • Stanley R. Pliska
Part of the Progress in Mathematics book series (PM, volume 202)


This paper presents an application of risk sensitive control theory in financial decision making. Specifically, we develop optimal, risk-sensitive investment strategies for a long-term investor who is interested in optimal allocation of her/his capital between cash, equities and fixed income instruments. The long-term fixed income instruments used are so-called rolling-horizon bonds. In order to construct the optimal risk-sensitive control policies relevant for the present application we advance the risk sensitive control theory developed in our previous papers.


Interest Rate Martingale Measure Geometric Brownian Motion Zero Coupon Bond Optimal Investment Strategy 
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© Springer Basel AG 2001

Authors and Affiliations

  • Tomasz R. Bielecki
    • 1
  • Stanley R. Pliska
    • 2
  1. 1.Department of MathematicsThe Northeastern Illinois UniversityChicagoUSA
  2. 2.Department of FinanceUniversity of Illinois at ChicagoChicagoUSA

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