Abstract
This paper presents an application of risk sensitive control theory in financial decision making. Specifically, we develop optimal, risk-sensitive investment strategies for a long-term investor who is interested in optimal allocation of her/his capital between cash, equities and fixed income instruments. The long-term fixed income instruments used are so-called rolling-horizon bonds. In order to construct the optimal risk-sensitive control policies relevant for the present application we advance the risk sensitive control theory developed in our previous papers.
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Bielecki, T.R., Pliska, S.R. (2001). Risk Sensitive Control with Applications to Fixed Income Portfolio Management. In: Casacuberta, C., Miró-Roig, R.M., Verdera, J., Xambó-Descamps, S. (eds) European Congress of Mathematics. Progress in Mathematics, vol 202. Birkhäuser, Basel. https://doi.org/10.1007/978-3-0348-8266-8_29
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DOI: https://doi.org/10.1007/978-3-0348-8266-8_29
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