Markov decision process algorithms for wealth allocation problems with defaultable bonds

Abstract

This paper is concerned with analysing optimal wealth allocation techniques within a defaultable financial market similar to Bielecki and Jang (2007). It studies a portfolio optimization problem combining a continuous-time jump market and a defaultable security; and presents numerical solutions through the conversion into a Markov decision process and characterization of its value function as a unique fixed point to a contracting operator. This work analyses allocation strategies under several families of utilities functions, and highlights significant portfolio selection differences with previously reported results.

An Approach to Customer Behavior Modeling using Markov Decision Process

“…This led to development of extension to MC called Markov Decision Processes (MDP). Since then, MDP was used for optimization of marketing planning and budgeting [6,7,8,9].…”