Article ID Journal Published Year Pages File Type
1155703 Stochastic Processes and their Applications 2013 37 Pages PDF
Abstract

We give an analytic characterization of a large-time “downside risk” probability associated with an investor’s wealth. We assume that risky securities in our market model are affected by “hidden” economic factors, which evolve as a finite-state Markov chain. We formalize and prove a duality relation between downside risk minimization and the related risk-sensitive optimization. The proof is based on an analysis of an ergodic-type Hamilton–Jacobi–Bellman equation with large (exponentially growing) drift.

Related Topics
Physical Sciences and Engineering Mathematics Mathematics (General)
Authors
,