The stability of the constrained utility maximization problem: a BSDE approach

DOI10.1137/120862016MaRDI QIDQ2873121zbMATH OpenOpenAlexFDO

Authors Markus Mocha, Nicholas Westray

Publication date 23 January 2014

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1107.0190

zbMATH Keywords

stabilityutility maximizationduality theoryquadratic semimartingale BSDEs

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80) Stability of control systems (93D99)

Abstract: This article studies the sensitivity of the power utility maximization problem with respect to the investor's relative risk aversion, the statistical probability measure, the investment constraints and the market price of risk. We extend previous descriptions of the dual domain then exploit the link between the constrained utility maximization problem and continuous semimartingale quadratic BSDEs to reduce questions on sensitivity to results on stability for such equations. This then allows us to prove appropriate convergence of the primal and dual optimizers in the semimartingale topology.

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Cited in

(10)

• Forward-backward systems for expected utility maximization
• Utility maximization problem with transaction costs: optimal dual processes and stability
• A BSDE arising in an exponential utility maximization problem in a pure jump market model
• Influence of risk tolerance on long-term investments: a Malliavin calculus approach
• Convergence rates of large-time sensitivities with the Hansen-Scheinkman decomposition
• BSDEs in utility maximization with BMO market price of risk
• Risk aversion asymptotics for power utility maximization
• Sensitivity analysis for expected utility maximization in incomplete Brownian market models
• Adapted Wasserstein distances and stability in mathematical finance
• Stability of the exponential utility maximization problem with respect to preferences

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