A Method for Solution of the Cauchy Problem with Polynomial Coefficients and Some Applications to Problems on Management of Investment Portfolios

Abstract

In this paper, we consider the problem on assessment of risk parameters of investment portfolios consisting of assets that can be modeled by a system of stochastic differential equations. Trends of this system depend on a collection of macro-factors, which, in turn, are also modeled by a system of stochastic differential equations. The portfolio management can be constructed by using the maximum condition for risk-sensitive interest rate functional for large time. We obtain direct formulas for values of current risk parameters for the portfolio managed.