Martingale Measure Method for Expected Utility Maximization in Discrete-Time Incomplete Markets

Ping Li (), Jianming Xia () and Jia-an Yan ()
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Ping Li: Institute of Systems Science, Academy of Mathematics and Systems Science, The Chinese Academy of Sciences
Jianming Xia: Institute of Applied Mathematics, Academy of Mathematics and Systems Science, The Chinese Academy of Sciences
Jia-an Yan: Institute of Applied Mathematics, Academy of Mathematics and Systems Science, The Chinese Academy of Sciences

Annals of Economics and Finance, 2001, vol. 2, issue 2, 445-465

Abstract: In this paper we study the expected utility maximization problem for discretetime incomplete financial markets. As shown by Xia and Yan (2000a, 2000b) in the continuous-time case, this problem can be solved by the martingale measure method. In a special discrete-time model, we explicitly work out the optimal trading strategies and the associated minimum relative entropy martingale measures and minimum Hellinger-Kakutani distance martingale measures.

Keywords: Martingale measure; Incomplete market; Utility maximization; Optimal trading strategy; Relative entropy; Hellinger-Kakutani distance (search for similar items in EconPapers)
JEL-codes: G11 G13 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (2)

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