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General maximum principles for partially observed risk-sensitive optimal control problems and applications to finance. (English) Zbl 1178.49049
Summary: This paper is concerned with partially observed risk-sensitive optimal control problems. Combining Girsanov’s theorem with a standard spike variational technique, we obtain some general maximum principles for the aforementioned problems. One of the distinctive differences between our results and the standard risk-neutral case is that the adjoint equations and variational inequalities strongly depend on a risk-sensitive parameter $\gamma $. Two examples are given to illustrate the applications of the theoretical results obtained in this paper. As a natural deduction, a general maximum principle is also obtained for a fully observed risk-sensitive case. At last, this result is applied to study a risk-sensitive optimal portfolio problem. An explicit optimal investment strategy and a cost functional are obtained. A numerical simulation result shows the influence of a risk-sensitive parameter on an optimal investment proportion; this coincides with its economic meaning and theoretical results.

49N70Differential games in calculus of variations
49K21Optimal control problems involving relations other than differential equations
91G10Portfolio theory
Full Text: DOI
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