Robust Utility Maximizing Strategies under Model Uncertainty and their Convergence

J\"orn Sass and Dorothee Westphal

Papers from arXiv.org

Abstract: In this paper we investigate a utility maximization problem with drift uncertainty in a multivariate continuous-time Black-Scholes type financial market which may be incomplete. We impose a constraint on the admissible strategies that prevents a pure bond investment and we include uncertainty by means of ellipsoidal uncertainty sets for the drift. Our main results consist firstly in finding an explicit representation of the optimal strategy and the worst-case parameter, secondly in proving a minimax theorem that connects our robust utility maximization problem with the corresponding dual problem. Thirdly, we show that, as the degree of model uncertainty increases, the optimal strategy converges to a generalized uniform diversification strategy.

Date: 2019-09, Revised 2021-11
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://arxiv.org/pdf/1909.01830 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:1909.01830

Access Statistics for this paper

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