A risk-sensitive maximum principle for a Markov regime-switching jump-diffusion system and applications

Zhongyang Sun, Isabelle Kemajou-Brown, Olivier Menoukeu-Pamen
2018 E S A I M: Control, Optimisation and Calculus of Variations  
In this paper, we derive a general stochastic maximum principle for a risk-sensitive type optimal control problem of Markov regime-switching jump-diffusion model. The results are obtained via a logarithmic transformation and the relationship between adjoint variables and the value function. We apply the results to study both a linear-quadratic optimal control problem and a risk-sensitive benchmarked asset management problem for Markov regime-switching models. In the latter case, the optimal
more » ... rol is of feedback form and is given in terms of solutions to a Markov regime-switching Riccatti equation and an ordinary Markov regime-switching differential equation. Mathematics Subject Classification. 93E20, 91G80.
doi:10.1051/cocv/2017039 fatcat:gmohthvqwneuzngakbmzbzqrje