Utility maximization under model uncertainty in discrete time
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Abstract: We give a general formulation of the utility maximization problem under nondominated model uncertainty in discrete time and show that an optimal portfolio exists for any utility function that is bounded from above. In the unbounded case, integrability conditions are needed as nonexistence may arise even if the value function is finite.
This paper establishes the existence of an optimal portfolio in a general discrete-time model with uncertainty about the underlying probabilistic model. A key feature is that the scenario set of possible probability measures need not be dominated by a single reference model. Existence of the optimizer is shown under a notion of no-arbitrage introduced in [\textit{B. Bouchard} and \textit{M. Nutz}, Ann. Appl. Probab. 25, No. 2, 823--859 (2015; Zbl 1322.60045)] for a utility function bounded from above. A counterexample illustrates that additional integrability assumptions are needed to obtain existence in the unbounded case.
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