Robust utility maximization without model compactness

DOI10.1137/140985718MaRDI QIDQ2797753zbMATH OpenOpenAlexFDO

Authors Julio D. Backhoff Veraguas, Joaquin Fontbona

Publication date 31 March 2016

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

Full work available at URL https://arxiv.org/abs/1405.0251

zbMATH Keywords

entropy minimizationmodular spacenoncompact uncertainty setOrlicz spacerobust utility maximizationworst-case measure

Mathematics Subject Classification ID

Spaces of measurable functions ((L^p)-spaces, Orlicz spaces, Köthe function spaces, Lorentz spaces, rearrangement invariant spaces, ideal spaces, etc.) (46E30) Duality theory (optimization) (49N15) Portfolio theory (91G10) Financial applications of other theories (91G80)

Abstract: We formulate conditions for the solvability of the problem of robust utility maximization from final wealth in continuous time financial markets, without assuming weak compactness of the densities of the uncertainty set, as customary in the literature. Relevant examples of such a situation typically arise when the uncertainty set is determined through moment constraints. Our approach is based on identifying functional spaces naturally associated with the elements of each problem. For general markets these are modular spaces, through which we can prove a minimax equality and the existence of optimal strategies by exploiting the compactness, which we establish, of the image by the utility function of the set of attainable wealths. In complete markets we obtain additionally the existence of a worst-case measure, and combining our ideas with abstract entropy minimization techniques, we moreover provide in that case a novel methodology for the characterization of such measures.

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Cited in

(12)

• Robust expected utility maximization with medial limits
• Sensitivity analysis for expected utility maximization in incomplete Brownian market models
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• Robust utility maximization under model uncertainty via a penalization approach
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