Sensitivity analysis of the utility maximisation problem with respect to model perturbations

DOI10.1007/S00780-019-00388-1zbMATH Open1465.91100arXiv1705.08291OpenAlexW2962917087WikidataQ128014639 ScholiaQ128014639MaRDI QIDQ1999596FDOQ1999596

Authors: Oleksii Mostovyi, Mihai Sîrbu 

Publication date: 27 June 2019

Published in: Finance and Stochastics (Search for Journal in Brave)

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.

Full work available at URL: https://arxiv.org/abs/1705.08291

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zbMATH Keywords

sensitivity analysisduality theoryoptimal investmentKunita-Watanabe decompositiongeneral uility function

Mathematics Subject Classification ID

Portfolio theory (91G10) Utility theory (91B16) Martingales with continuous parameter (60G44) Optimal stochastic control (93E20)

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Cited In (11)

• Utility maximization problem with transaction costs: optimal dual processes and stability
• Convergence rates of large-time sensitivities with the Hansen-Scheinkman decomposition
• Trading with small nonlinear price impact
• Sensitivity analysis of utility-based prices and risk-tolerance wealth processes
• Continuity of utility maximization under weak convergence
• Stability of the Indirect Utility Process
• Sensitivity analysis for expected utility maximization in incomplete Brownian market models
• Shapley Effects for Global Sensitivity Analysis: Theory and Computation
• Sensitivity analysis with finite changes: an application to modified EOQ models
• Convergence of optimal expected utility for a sequence of binomial models
• Quadratic expansions in optimal investment with respect to perturbations of the semimartingale model

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