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Stability of utility maximization in nonequivalent markets

Kim Weston ()
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Kim Weston: Carnegie Mellon University

Finance and Stochastics, 2016, vol. 20, issue 2, 511-541

Abstract: Abstract Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of markets, in which the volatility of asset prices (as well as the drift) varies. Degeneracies arise from the presence of nonequivalence. In the positive real line utility framework, a counterexample is presented showing that the expected utility maximization problem can be unstable. A positive stability result is proved for utility functions on the entire real line.

Keywords: Expected utility theory; Incompleteness; Random endowment; Market stability; Nonequivalent markets; 91G80; 93E15; 60G44 (search for similar items in EconPapers)
JEL-codes: G13 D81 (search for similar items in EconPapers)
Date: 2016
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