Robust Utility Maximization with Drift and Volatility Uncertainty

Kerem Ugurlu

Papers from arXiv.org

Abstract: We give explicit solutions for utility maximization of terminal wealth problem $u(X_T)$ in the presence of Knightian uncertainty in continuous time $[0,T]$ in a complete market. We assume there is uncertainty on both drift and volatility of the underlying stocks, which induce nonequivalent measures on canonical space of continuous paths $\O$. We take that the uncertainty set resides in compact sets that are time dependent. In this framework, we solve the robust optimization problem with logarithmic, power and exponential utility functions, explicitly.

Date: 2019-09
New Economics Papers: this item is included in nep-mic and nep-upt
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