Sensitivity analysis of the utility maximisation problem with respect to model perturbations
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Publication:1999596
Abstract: We study the sensitivity of the expected utility maximization problem in a continuous semi-martingale market with respect to small changes in the market price of risk. Assuming that the preferences of a rational economic agent are modeled with a general utility function, we obtain a second-order expansion of the value function, a first-order approximation of the terminal wealth, and construct trading strategies that match the indirect utility function up to the second order. If a risk-tolerance wealth process exists, using it as a num'eraire and under an appropriate change of measure, we reduce the approximation problem to a Kunita-Watanabe decomposition.
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Cited in
(17)- Quadratic expansions in optimal investment with respect to perturbations of the semimartingale model
- Utility maximization problem with transaction costs: optimal dual processes and stability
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