Jose Figueroa-Lopez, Utility Maximization in Hidden Regime-Switching Markets with Default Risk
SAS 4201We consider the problem of maximizing expected utility from terminal wealth for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian motions modulated by a hidden continuous time finite state Markov chain. We reduce…