RISK-SENSITIVITY, LARGE DEVIATIONS AND STOCHASTIC-CONTROL

An exponential function of cost is adopted as a risk-sensitive criteri on, and reasons given that this choice should be a natural one. It is shown that the analysis leads to risk-sensitive versions of the certai nty-equivalence principle (separation principle) and of the maximum pr inciple, and that these have a validity even outside the usual linear/ quadratic/Gaussian framework. The methods are applied to some simple e xamples of economic interest.