Stability of utility maximization in nonequivalent markets (Q287676): Difference between revisions

In the present paper, the stability of a utility maximization problem with random endowment is studied with respect to perturbations in both volatility and drift, as a part of Hadamard's well-posedness criteria. More specifically, the authors answer the following question: What conditions on the utility function and modes of convergence on the sequence of volatilities and drifts guarantee convergence of the corresponding value functions and indifference prices? The novelty of consideration lies in the nonequivalence of markets which leads to the appearance of degeneracies. A counterexample is presented demonstrating that in the positive real line utility framework, the expected utility maximization problem can be unstable. At the same time, a positive stability result is established for the utility functions on the entire real axis.