Risk aversion asymptotics for power utility maximization (Q2428507): Difference between revisions

The author examines the asymptotic behavior of the optimal strategies for trading and consumption under the problem of maximization of the expected utility. The utility function considered is the power utility. The frame under which these results are obtained is especially the continuous-time semi-martingale model of financial markets, in which standard conditions like the Delbaen-Schachermayer NFLVR hold. In the case where \(p \to -\infty\), the fact that the relative risk aversion tends to infinity and the agent becomes more reluctant to take risks, while at the infinity she does not invest to them, is confirmed by the first result of the article. According to it, if the optimal consumption is a proportion of the initial wealth, then it converges pointwise to a deterministic function. This consumption corresponds to an optimal portfolio strategy which tends to zero in a local \(L^2\)-sense. The asymptotic results in this case without intermediate consumption in the case of the continuous-time, are directly related to the optimal strategy and consumption for the case of the exponential utility. On the other hand, in the case where \(p \to 0\) the corresponding optimal trading and portfolio strategies are directly related to the ones of logarithmic utility. The techniques which are use so that these results to be obtained are taken especially from stochastic control theory. The notion of \textit{opportunity processes} is used for this purpose. In general, Backward Stochastic Differential Equations and Convex Analysis complete the mathematical tools for this purpose.