An expansion in the model space in the context of utility maximization
Portfolio Management
2016-08-11 v3
Abstract
In the framework of an incomplete financial market where the stock price dynamics are modeled by a continuous semimartingale (not necessarily Markovian) an explicit second-order expansion formula for the power investor's value function - seen as a function of the underlying market price of risk process - is provided. This allows us to provide first-order approximations of the optimal primal and dual controls. Two specific calibrated numerical examples illustrating the accuracy of the method are also given.
Keywords
Cite
@article{arxiv.1410.0946,
title = {An expansion in the model space in the context of utility maximization},
author = {Kasper Larsen and Oleksii Mostovyi and Gordan Žitković},
journal= {arXiv preprint arXiv:1410.0946},
year = {2016}
}