On the two-times differentiability of the value functions in the problem of optimal investment in incomplete markets

DOI10.1214/105051606000000259MaRDI QIDQ862209zbMATH OpenOpenAlexFDO

Authors Dmitry Kramkov, Mihai Sîrbu

Publication date 5 February 2007

Published in The Annals of Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/math/0610224

zbMATH Keywords

portfolioconjugate functionsduality theoryexpected utility maximizationsecurity marketsemimartingale processes

Mathematics Subject Classification ID

Portfolio theory (91G10) Stochastic programming (90C15) Stochastic models in economics (91B70)

Abstract: We study the two-times differentiability of the value functions of the primal and dual optimization problems that appear in the setting of expected utility maximization in incomplete markets. We also study the differentiability of the solutions to these problems with respect to their initial values. We show that the key conditions for the results to hold true are that the relative risk aversion coefficient of the utility function is uniformly bounded away from zero and infinity, and that the prices of traded securities are sigma-bounded under the num'{e}raire given by the optimal wealth process.

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Cites work

• scientific article; zbMATH DE number 439380 (Why is no real title available?)
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• SOME NEW RESULTS IN THE THEORY OF CONTROLLED DIFFUSION PROCESSES
• Sensitivity analysis of utility-based prices and risk-tolerance wealth processes
• The asymptotic elasticity of utility functions and optimal investment in incomplete markets
• The fundamental theorem of asset pricing for unbounded stochastic processes

Cited in

(26)

• Overview of utility-based valuation
• Quadratic expansions in optimal investment with respect to perturbations of the semimartingale model
• Utility maximization problem with transaction costs: optimal dual processes and stability
• Density of the set of probability measures with the martingale representation property
• Corrections to the prices of derivatives due to market incompleteness
• On the analyticity of the value function in optimal investment and stochastically dominant markets
• Asymptotic analysis of the expected utility maximization problem with respect to perturbations of the numéraire
• Sensitivity analysis of utility-based prices and risk-tolerance wealth processes
• Stability and asymptotic analysis of the Föllmer-Schweizer decomposition on a finite probability space
• A note on admissibility when the credit line is infinite
• Muckenhoupt's \((A_p)\) condition and the existence of the optimal martingale measure
• Malliavin method for optimal investment in financial markets with memory
• Sensitivity analysis for expected utility maximization in incomplete Brownian market models
• An expansion in the model space in the context of utility maximization
• On the properties of dynamic value functions in the problem of optimal investment in incomplete markets
• On Regularity of Primal and Dual Dynamic Value Functions Related to Investment Problems and Their Representations as Backward Stochastic PDE Solutions
• Sensitivity analysis of the utility maximisation problem with respect to model perturbations
• The general structure of optimal investment and consumption with small transaction costs
• Abstract, classic, and explicit turnpikes
• On the closure in the emery topology of semimartingale wealth-process sets
• On the stochastic behaviour of optional processes up to random times
• Differentiability of the value function in the robust utility maximization problem
• Asymptotic analysis of utility-based hedging strategies for small number of contingent claims
• Optimal investment and price dependence in a semi-static market
• Portfolios and risk premia for the long run
• Optimal investment under relative performance concerns

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