Related papers: Utility maximization in incomplete markets with de…
A classical portfolio theory deals with finding the optimal proportion in which an agent invests a wealth in a risk-free asset and a probabilistic risky asset. Formulating and solving the problem depend on how the risk is represented and…
We develop a novel five-component decomposition of optimal dynamic portfolio choice, which reveals the simultaneous impacts from market incompleteness and wealth-dependent utilities. Under the HARA utility and a nonrandom interest rate, we…
We consider the robust utility maximization using a static holding in derivatives and a dynamic holding in the stock. There is no fixed model for the price of the stock but we consider a set of probability measures (models) which are not…
The aim of this paper is to solve an optimal investment, consumption and life insurance problem when the investor is restricted to capital guarantee. We consider an incomplete market described by a jump-diffusion model with stochastic…
We study arbitrage opportunities, market viability and utility maximization in market models with an insider. Assuming that an economic agent possesses from the beginning an additional information in the form of a random variable G, which…
Possibilistic risk theory starts from the hypothesis that risk is modelled by fuzzy numbers. In particular, in a possibilistic portfolio choice problem, the return of a risky asset will be a fuzzy number. The expected utility operators have…
We study the optimal portfolio liquidation problem over a finite horizon in a limit order book with bid-ask spread and temporary market price impact penalizing speedy execution trades. We use a continuous-time modeling framework, but in…
In this note we consider the maximization of the expected terminal wealth for the setup of quadratic transaction costs. First, we provide a very simple probabilistic solution to the problem. Although the problem was largely studied, as far…
The aim of this short note is to establish a limit theorem for the optimal trading strategies in the setup of the utility maximization problem with proportional transaction costs. This limit theorem resolves the open question from [4]. The…
We prove existence and uniqueness of stochastic equilibria in a class of incomplete continuous-time financial environments where the market participants are exponential utility maximizers with heterogeneous risk-aversion coefficients and…
We consider the portfolio optimisation problem where the terminal function is an S-shaped utility applied at the difference between the wealth and a random benchmark process. We develop several numerical methods for solving the problem…
Portfolio selection problems that optimize expected utility are usually difficult to solve. If the number of assets in the portfolio is large, such expected utility maximization problems become even harder to solve numerically. Therefore,…
This paper investigates optimal portfolio strategies in a financial market where the drift of the stock returns is driven by an unobserved Gaussian mean reverting process. Information on this process is obtained from observing stock returns…
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time…
We examine the problem of optimal portfolio allocation within the framework of utility theory. We apply exponential utility to derive the optimal diversification strategy and logarithmic utility to determine the optimal leverage. We enhance…
We study the Merton portfolio management problem within a complete market, non constant time discount rate and general utility framework. The non constant discount rate introduces time inconsistency which can be solved by introducing sub…
For a stochastic factor model we maximize the long-term growth rate of robust expected power utility with parameter $\lambda\in(0,1)$. Using duality methods the problem is reformulated as an infinite time horizon, risk-sensitive control…
We review the utility-based valuation method for pricing derivative securities in incomplete markets. In particular, we review the practical approach to the utility-based pricing by the means of computing the first order expansion of…
We provide a verification and characterization result of optimal maximal sub-solutions of BSDEs in terms of fully coupled forward backward stochastic differential equations. We illustrate the application thereof in utility optimization with…
Portfolio managers often evaluate performance relative to benchmark, usually taken to be the Standard & Poor 500 stock index fund. This relative portfolio wealth is defined as the absolute portfolio wealth divided by wealth from investing…