English

Utility maximisation and change of variable formulas for time-changed dynamics

Probability 2024-07-04 v1

Abstract

In this paper we derive novel change of variable formulas for stochastic integrals w.r.t. a time-changed Brownian motion where we assume that the time-change is a general increasing stochastic process with finitely many jumps in a bounded set of the positive half-line and is independent of the Brownian motion. As an application we consider the problem of maximising the expected utility of the terminal wealth in a semimartingale setting, where the semimartingale is written in terms of a time-changed Brownian motion and a finite variation process. To solve this problem, we use an initial enlargement of filtration and our change of variable formulas to shift the problem to a maximisation problem under the enlarged filtration for models driven by a Brownian motion and a finite variation process. The latter problem can be solved by using martingale properties. Then applying again a change of variable formula, we derive the optimal strategy for the original problem for a power utility and for a logarithmic utility.

Keywords

Cite

@article{arxiv.2407.02915,
  title  = {Utility maximisation and change of variable formulas for time-changed dynamics},
  author = {Giulia Di Nunno and Hannes Haferkorn and Asma Khedher and Michèle Vanmaele},
  journal= {arXiv preprint arXiv:2407.02915},
  year   = {2024}
}

Comments

25 pages. arXiv admin note: substantial text overlap with arXiv:1912.03202

R2 v1 2026-06-28T17:27:37.467Z