This paper develops a continuous time risk-sensitive portfolio optimization model with a general transaction cost structure and where the individual securities or asset categories are explicitly affected by underlying economic factors. The security prices and factors follow diffusion processes...

Purpose – The purpose of this paper is to generalize the one-factor mortgage-backed securities (MBS)-pricing model proposed by Kariya and Kobayashi to a three-factor model. The authors describe prepayment behavior due to refinancing and rising housing prices by discrete-time, no-arbitrage...

Finite and infinite planning horizon Markov decision problems are formulated for a class of jump processes with general state and action spaces and controls which are measurable functions on the time axis taking values in an appropriate metrizable vector space. For the finite horizon problem,...

This paper develops a general stochastic model of a frictionless security market with continuous trading. The vector price process is given by a semimartingale of a certain class, and the general stochastic integral is used to represent capital gains. Within the framework of this model, we...

A paper by the same authors in the 1981 volume of Stochastic Processes and Their Applications presented a general model, based on martingales and stochastic integrals, for the economic problem of investing in a portfolio of securities. In particular, and using the terminology developed therein,...

We study the problem of investing in securities in order to maximize the after-tax rate of return. We consider a single stock modeled as geometric Brownian motion along with the objective of maximizing the long-run growth rate of after-tax wealth. We show that it is optimal not only to cut short...

In this paper we extend standard dynamic programming results for the risk sensitive optimal control of discrete time Markov chains to a new class of models. The state space is only finite, but now the assumptions about the Markov transition matrix are much less restrictive. Our results are then...