We discuss how Whittle’s (Whittle, 1990) approach to risk-sensitive optimal control problems can be applied in economics and finance. We show how his analysis of the class of Linear Exponential Quadratic Gaussian problems can be extended to accommodate time-discounting, while preserving its simple and general recursive solutions. We apply Whittle’s methodology investigating two specific problems in financial economics and monetary policy.

Linear Risk-averse Optimal Control Problems: Applications in Economics and Finance

VITALE, Paolo
2012-01-01

Abstract

We discuss how Whittle’s (Whittle, 1990) approach to risk-sensitive optimal control problems can be applied in economics and finance. We show how his analysis of the class of Linear Exponential Quadratic Gaussian problems can be extended to accommodate time-discounting, while preserving its simple and general recursive solutions. We apply Whittle’s methodology investigating two specific problems in financial economics and monetary policy.
2012
CASMEF Working Papers Series
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11564/445509
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