Power Mixture Forward Performance Processes

DOI10.1137/20M1385500MaRDI QIDQ5097226zbMATH OpenOpenAlexFDO

Authors Levon Avanesyan, Ronnie Sircar

Publication date 22 August 2022

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

Full work available at URL https://arxiv.org/abs/2012.10847

zbMATH Keywords

forward performance processesoptimal investment

Mathematics Subject Classification ID

Second-order elliptic equations (35J15) Nonlinear parabolic equations (35K55) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Portfolio theory (91G10)

Abstract: We consider the forward investment problem in market models where the stock prices are continuous semimartingales adapted to a Brownian filtration. We construct a broad class of forward performance processes with initial conditions of power mixture type, $u(x)=in{t}_{mathbbI}frac{x}^{1-gamma}1-gammau(mathrmdgamma)$. We proceed to define and fully characterize two-power mixture forward performance processes with constant risk aversion coefficients in the interval $(0,1)$, and derive properties of two-power mixture forward performance processes when the risk aversion coefficients are continuous stochastic processes. Finally, we discuss the problem of managing an investment pool of two investors, whose respective preferences evolve as power forward performance processes.

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Cites work

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Cited in

(7)

• A dual characterization of self-generation and exponential forward performances
• Explicit description of HARA forward utilities and their optimal portfolios
• A class of homothetic forward investment performance processes with non-zero volatility
• Predictable forward performance processes: the binomial case
• Predictable forward performance processes in complete markets
• Power Forward Performance in Semimartingale Markets with Stochastic Integrated Factors
• Rank-dependent predictable forward performance processes

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