Risk-Sensitive Asset Management under a Wishart Autoregressive Factor Model

Hiroaki Hata, Jun Sekine

Department of Mathematics, Faculty of Education, Shizuoka University, Ohya, Japan.
Division of Applied Mathematics for Social Systems, Graduate School of Engineering Science, Osaka University, Toyonaka, Japan.

DOI: 10.4236/jmf.2013.31A021                

Abstract

The risk-sensitive asset management problem with a finite horizon is studied under a financial market model having a Wishart autoregressive stochastic factor, which is positive-definite symmetric matrix-valued. This financial market model has the following interesting features: 1) it describes the stochasticity of the market covariance structure, interest rates, and the risk premium of the risky assets; and 2) it admits the explicit representations of the solution to the risk-sensitive asset management problem.

Keywords

Risk-Sensitive Asset Management; Wishart Autoregressive Stochastic Factor; Stochastic Covariance; Stochastic Interest Rate; Stochastic Risk Premium; Riccati Differential Equation

Conflicts of Interest

The authors declare no conflicts of interest.

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