Effective Approximation Methods for Constrained Utility Maximization with Drift Uncertainty

Dongmei Zhu () and Harry Zheng ()
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Dongmei Zhu: Southeast University
Harry Zheng: Imperial College

Journal of Optimization Theory and Applications, 2022, vol. 194, issue 1, No 8, 219 pages

Abstract: Abstract In this paper, we propose a novel and effective approximation method for finding the value function for general utility maximization with closed convex control constraints and partial information. Using the separation principle and the weak duality relation, we transform the stochastic maximum principle of the fully observable dual control problem into an equivalent error minimization stochastic control problem and find the tight lower and upper bounds of the value function and its approximate value. Numerical examples show the goodness and usefulness of the proposed method.

Keywords: Constrained utility maximization; Drift uncertainty; Stochastic maximum principle; Effective approximation method; Lower and upper bounds of value function; 93E20; 49M29 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10957-022-02015-0

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