Strategies with minimal norm are optimal for expected utility maximisation under high model ambiguity

Laurence Carassus () and Johannes Wiesel ()
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Laurence Carassus: Université Paris-Saclay
Johannes Wiesel: Carnegie Mellon University

Finance and Stochastics, 2025, vol. 29, issue 2, No 6, 519-551

Abstract: Abstract We investigate an expected utility maximisation problem under model uncertainty in a one-period financial market. We capture model uncertainty by replacing the baseline model ℙ with an adverse choice from a Wasserstein ball of radius k $k$ around ℙ in the space of probability measures and consider the corresponding Wasserstein distributionally robust optimisation problem. We show that solutions converge to a strategy with minimal norm when uncertainty becomes large, i.e., when the radius k $k$ tends to infinity.

Keywords: Utility maximisation; High model uncertainty; Wasserstein distance; Uniform diversification; 91G10; 60E99; 90C08; 91G80; 93E20 (search for similar items in EconPapers)
JEL-codes: C61 C65 G11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s00780-025-00558-4

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