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 language | English (US) |
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Pages (from-to) | 261-291 |
Number of pages | 31 |
Journal | Stochastic Models |
Volume | 31 |
Issue number | 2 |
DOIs | |
State | Published - Apr 3 2015 |
All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Modeling and Simulation
- Applied Mathematics