Asymptotics of robust utility maximization (Q2428048)

A long term investment model is considered wherein the evolution is affected by an economic factor which is itself a random process. The problem is to maximize the worst case growth rate of an expected power utility over a convex set of admissible probability measures absolutely continuous with respect to a base measure. This is cast as a risk sensitive game and the associated Hamilton-Jacobi-Isaacs equation and the subsequent characterization of the optimal policy are derived first heuristically and then rigorously. Explicit solutions are derived for important special cases. An application to the problem of outperforming a benchmark with maximum probability is also described.