Horizon dependence of utility optimizers in incomplete models

Kasper Larsen () and Hang Yu ()

Finance and Stochastics, 2012, vol. 16, issue 4, 779-801

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>T may fail to converge to the T-horizon value as S↑T. Finally, we provide necessary and sufficient conditions preventing the existence of this phenomenon. Copyright Springer-Verlag 2012

Keywords: Incompleteness; Brownian motion; Market price of risk process; Interest rate process; Expected utility theory; 91B28; 90C46; 60G44; G11; D81 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s00780-012-0171-6

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