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

Oscar López, Rafael Serrano

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)261-291
Number of pages31
JournalStochastic Models
Volume31
Issue number2
DOIs
StatePublished - Apr 3 2015

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Modeling and Simulation
  • Applied Mathematics

Fingerprint

Dive into the research topics of 'Martingale approach to optimal portfolio-consumption problems in Markov-modulated pure-jump models'. Together they form a unique fingerprint.

Cite this