Risk minimizing portfolios and HJBI equations for stochastic differential games

In this paper, we consider the problem to find a market portfolio that minimizes the convex risk measure of the terminal wealth in a jump diffusion market. We formulate the problem as a two player (zero-sum) stochastic differential game. To help us find a solution, we prove a theorem giving the Hamilton–Jacobi–Bellman–Isaacs (HJBI) conditions for a general zero-sum stochastic differential game in a jump diffusion setting. We then use the theorem to study particular risk minimization problems. Finally, we extend our approach to cover general stochastic differential games (not necessarily zero-sum), and we obtain similar HJBI equations for the Nash equilibria of such games.

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