A note on the worst case approach for a market with a stochastic interest rate

Dariusz Zawisza

Papers from arXiv.org

Abstract: We solve robust optimization problem and show the example of the market model for which the worst case measure is not a martingale measure. In our model the instantaneous interest rate is determined by the Hull-White model and the investor employs the HARA utility to measure his satisfaction.To protect against the model uncertainty he uses the worst case measure approach. The problem is formulated as a stochastic game between the investor and the market from the other side. PDE methods are used to find the saddle point and the precise verification argument is provided.

Date: 2020-01
New Economics Papers: this item is included in nep-gth, nep-ore and nep-upt
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Published in Applicationes Mathematicae 45 (2018), 151-160

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2001.01998

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