Date of Award

Spring 5-15-2020

Author's School

Graduate School of Arts and Sciences

Author's Department


Degree Name

Master of Arts (AM/MA)

Degree Type



In this thesis, we aim to maximize the expected utility of a risk-averse investor by allocating her wealth in a risk-free bank account, a stock, and a defaultable security. The securities' rates of return depend on a hidden continuous-time finite-state Markov chain representing the economic regime. The securities' price volatilities are determined by an observable process, which can be considered as a noisy observation of the hidden economic regime. We use a two dimensional Markov chain, with a special construction of its generator matrix, to model the joint dynamics of the hidden process and the observable process. Our model is a generalized version of the original model introduced by Capponi et al. [1]. For our generalized model, we find the dynamics of the filtered economic regime probabilities. Then, using it, we reduce the partially observed optimal control problem to a control problem with complete observation.


English (en)

Chair and Committee

José E. Figueroa-López

Committee Members

Nan Lin, Likai Chen