Stochastic Control and Applications in Economics

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9970852FlemingThis project has two parts. The first concerns risk-sensitive stochastic control on an infinite time horizon, with applications in finance. Investment control policies are sought which maximize the long term growth rate of expected utility of an investor's wealth. Infinite horizon robust control problems are considered as deterministic, small noise intensity limits of risk sensitive problems. The second part concerns macroeconomic growth/debt models for developing economies in which interest and production rates are modelled stochastically. In the models to be considered, capital investment and consumption are being controlled. Among the modelling issues to be addressed are appropriate limitations on borrowing through either hard constraints or penalty functions.This project concerns optimal stochastic control techniques for problems of finance. One area of application concerns investment portfolio optimization over long time horizons. The goal is to suggest investment control policies that provide good growth of an investor's wealth. This is done by optimizing some risk-sensitive performance criterion. Another area of application is to international finance and debt. Recent crises, especially in Asia, have led to questions concerning the causes, how crises can be prevented and possible early warning signs of vulnerability. The goal of this research is to develop and analyze stochastic control models for the growth of developing economies in which interest and production rates are modelled stochastically. The model performance under optimal control policies may provide benchmarks to indicate whether actual current account deficits and foreign debt are sustainable under current policies.