Abstract

The finite state semi-Markov process is a generalization over the Markov chain in which the sojourn time distribution is any general distribution. In this article, we provide a sufficient stochastic maximum principle for the optimal control of a semi-Markov modulated jump-diffusion process in which the drift, diffusion, and the jump kernel of the jump-diffusion process is modulated by a semi-Markov process. We also connect the sufficient stochastic maximum principle with the dynamic programming equation. We apply our results to finite horizon risk-sensitive control portfolio optimization problem and to a quadratic loss minimization problem.

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