Optimal investment with derivative securities (Q2488502)

The authors consider an investor who maximizes the expected exponential utility of terminal wealth, combining a static position in derivative securities with a traditional dynamic trading strategy in stocks. The concern of this paper is to find optimal trading strategies in the underlying assets as well as finitely many derivative securities. The main result is that for a given no-arbitrage vector of prices for bounded payoffs of the derivative securities, there exists a unique derivatives position together with a dynamic trading strategy maximizing the expected utility. The optimal derivative is a solution of the equation containing the gradient of an indifference price.