Utility maximization in incomplete markets
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Abstract: We consider the problem of utility maximization for small traders on incomplete financial markets. As opposed to most of the papers dealing with this subject, the investors' trading strategies we allow underly constraints described by closed, but not necessarily convex, sets. The final wealths obtained by trading under these constraints are identified as stochastic processes which usually are supermartingales, and even martingales for particular strategies. These strategies are seen to be optimal, and the corresponding value functions determined simply by the initial values of the supermartingales. We separately treat the cases of exponential, power and logarithmic utility.
The authors consider the problem of utility maximization for small traders in incomplete financial markets, with constraints described by closed, but not necessarily convex, sets. The corresponding final wealths are identified, the trading strategies are seen to be optimal, and the value functions are determined simply by the initial values of the wealths. Particular cases are treated, such as: exponential, power and logarithmic utility.
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