An expansion in the model space in the context of utility maximization

Kasper Larsen, Oleksii Mostovyi and Gordan \v{Z}itkovi\'c

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Abstract: In the framework of an incomplete financial market where the stock price dynamics are modeled by a continuous semimartingale (not necessarily Markovian) an explicit second-order expansion formula for the power investor's value function - seen as a function of the underlying market price of risk process - is provided. This allows us to provide first-order approximations of the optimal primal and dual controls. Two specific calibrated numerical examples illustrating the accuracy of the method are also given.

Date: 2014-10, Revised 2016-08
New Economics Papers: this item is included in nep-upt
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