A Risk-Sensitive Portfolio Optimization Problem with Fixed Incomes Securities

TL;DR

This paper extends a risk-sensitive portfolio optimization model to include fixed income securities, proving the existence of optimal portfolios in both finite and infinite horizon settings under general conditions.

Contribution

It generalizes Nagai's 2003 model to incorporate fixed income securities and establishes the existence of optimal solutions.

Findings

Existence of optimal portfolios proven for finite horizon.

Existence of optimal portfolios proven for infinite horizon.

Model includes fixed income securities in risk-sensitive optimization.

Abstract

We discuss a class of risk-sensitive portfolio optimization problems. We consider the portfolio optimization model investigated by Nagai in 2003. The model by its nature can include fixed income securities as well in the portfolio. Under fairly general conditions, we prove the existence of optimal portfolio in both finite and infinite horizon problems.