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On optimal investment with processes of long or negative memory

Huy N. Chau and Miklos Rasonyi

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Abstract: We consider the problem of utility maximization for investors with power utility functions. Building on the earlier work Larsen et al. (2016), we prove that the value of the problem is a Frechet-differentiable function of the drift of the price process, provided that this drift lies in a suitable Banach space. We then study optimal investment problems with non-Markovian driving processes. In such models there is no hope to get a formula for the achievable maximal utility. Applying results of the first part of the paper we provide first order expansions for certain problems involving fractional Brownian motion either in the drift or in the volatility. We also point out how asymptotic results can be derived for models with strong mean reversion.

New Economics Papers: this item is included in nep-cse and nep-upt
Date: 2016-08, Revised 2017-03
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Handle: RePEc:arx:papers:1608.00768