RISK-SENSITIVE INVESTMENT STRATEGIES UNDER PARTIALLY OBSERVABLE MARKET CONDITIONS

摘要

System, method and computer program product for modelling Risk-Sensitive Partially-Observable Markov Decision Processes (POMDPs), e.g., in a high-risk domain such as financial planning and solving such equations exactly, such that agents maximize the expected utility of their actions. The system and method employs an exact algorithm for solving Risk-Sensitive POMDPs, for piecewise linear utility functions, by representing underlying value functions with sets of piecewise bilinear functions—computed using functional value iteration—and pruning the dominated bilinear functions using efficient linear programming approximations of underlying non-convex bilinear programs. Considering piecewise linear approximations of utility functions, (i) there is defined the Risk-Sensitive POMDP model that incorporates value functions V(b,w) where argument “b” is a belief state and argument “w” is a continuous wealth dimension; (ii) derive the fundamental properties of the underlying value functions and provide a functional value iteration technique to compute them; and (iii) determine the dominated value functions, to speed up the algorithm.