Power utility maximization in exponential Lévy models: Convergence of discrete-time to continuous-time maximizers

DOI10.1007/S00186-012-0388-3MaRDI QIDQ1935938zbMATH OpenOpenAlexFDO

Authors J. Temme

Publication date 20 February 2013

Published in Mathematical Methods of Operations Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1103.5575

zbMATH Keywords

discretizationexponential Lévy processpower utilityutility maximization

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Applications of stochastic analysis (to PDEs, etc.) (60H30) Utility theory (91B16) Portfolio theory (91G10) Financial applications of other theories (91G80)

Abstract: Consider power utility maximization of terminal wealth in a 1-dimensional continuous-time exponential Levy model with finite time horizon. We discretize the model by restricting portfolio adjustments to an equidistant discrete time grid. Under minimal assumptions we prove convergence of the optimal discrete-time strategies to the continuous-time counterpart. In addition, we provide and compare qualitative properties of the discrete-time and continuous-time optimizers.

Review text

The author defines a discrete-time expotential Lévy model as the restriction of given continuous-time expotential Lévy model to discrete time. The agent is allowed to invest in each period the fraction of current wealth in the stock. In this paper, some properties of the optimal investor strategy are studied. All results are presented as proved mathematical theorems. Reviewer's remark: In my opinion, all obtained here results have a technical character.

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Cited in

(5)

• Power utility maximization in an exponential Lévy model without a risk-free asset
• On a Connection between Power and Logarithmic Utility Maximization Problems in the Exponential Lévy Model
• Constancy of equilibrium interest rates for power utility functions and stochastic constant returns to scale technologies
• Power utility maximization in constrained exponential Lévy models
• Short Communication: Exponential Utility Maximization in a Discrete Time Gaussian Framework

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