Martingale and Relaxation-Projection Methods for Utility Maximization with Portfolio Constraints and Stochastic Income

Yunhong Yang
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Yunhong Yang: Guanghua School of Management, Peking University

Annals of Economics and Finance, 2000, vol. 1, issue 1, 117-146

Abstract: The problem of maximizing the expected utility from terminal wealth in the presence of a stochastic endowment and constraints on the portfolio choices is examined. We model short-sale and borrowing constraints, as well as incomplete markets, as special cases of constraints. The existence of optimal policies is established under fairly general assumptions on the security price coefficients and the individual's utility function. This result is obtained by using martingale techniques to reformulate the individual's dynamic optimization problem as an equivalent static one.

Keywords: Portfolio constraints; Stochastic income; Relaxation-projection methods (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2000:v:1:i:1:p:117-146

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