Horizon dependence of utility optimizers in incomplete models

DOI10.1007/S00780-012-0171-6MaRDI QIDQ693036zbMATH OpenOpenAlexFDO

Authors Kaspar Larsen, Hang Yu

Publication date 7 December 2012

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

Full work available at URL https://arxiv.org/abs/1006.5057

zbMATH Keywords

Brownian motionexpected utility theoryincompletenessinterest rate processmarket price of risk process

Mathematics Subject Classification ID

Optimality conditions and duality in mathematical programming (90C46) Portfolio theory (91G10) Martingales with continuous parameter (60G44)

Abstract: This paper studies the utility maximization problem with changing time horizons in the incomplete Brownian setting. We first show that the primal value function and the optimal terminal wealth are continuous with respect to the time horizon $T$. Secondly, we exemplify that the expected utility stemming from applying the $T$-horizon optimizer on a shorter time horizon $S$, $S<T$, may not converge as $SuparrowT$ to the $T$-horizon value. Finally, we provide necessary and sufficient conditions preventing the existence of this phenomenon.

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Cited in

(5)

• Three essays on exponential hedging with variable exit times
• Continuity of utility maximization under weak convergence
• Time consistent utility maximization
• Utility maximization problem with transaction costs: optimal dual processes and stability
• Behavioral portfolio selection: asymptotics and stability along a sequence of models

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