Sensitivity analysis of the utility maximization problem with respect to model perturbations

Oleksii Mostovyi and Mihai S\^irbu

Papers from arXiv.org

Abstract: We study the sensitivity of the expected utility maximization problem in a continuous semi-martingale market with respect to small changes in the market price of risk. Assuming that the preferences of a rational economic agent are modeled with a general utility function, we obtain a second-order expansion of the value function, a first-order approximation of the terminal wealth, and construct trading strategies that match the indirect utility function up to the second order. If a risk-tolerance wealth process exists, using it as a num\'eraire and under an appropriate change of measure, we reduce the approximation problem to a Kunita-Watanabe decomposition.

Date: 2017-05
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://arxiv.org/pdf/1705.08291 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1705.08291

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().