ROBUST UTILITY MAXIMIZATION WITH LÉVY PROCESSES

Ariel Neufeld; Marcel Nutz

doi:10.1111/mafi.12139

ROBUST UTILITY MAXIMIZATION WITH LÉVY PROCESSES

Ariel Neufeld, Marcel Nutz^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

41 Citations (Scopus)

Abstract

We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible Lévy triplets, that is, possible instantaneous drift, volatility, and jump characteristics of the price process. We show that an optimal investment strategy exists and compute it in semi-closed form. Moreover, we provide a saddle point analysis describing a worst-case model.

Original language	English
Pages (from-to)	82-105
Number of pages	24
Journal	Mathematical Finance
Volume	28
Issue number	1
DOIs	https://doi.org/10.1111/mafi.12139
Publication status	Published - Jan 2018
Externally published	Yes

Bibliographical note

Publisher Copyright:
© 2016 Wiley Periodicals, Inc.

ASJC Scopus Subject Areas

Accounting
Finance
Social Sciences (miscellaneous)
Economics and Econometrics
Applied Mathematics

Keywords

Knightian uncertainty
nonlinear Lévy process
utility maximization

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10.1111/mafi.12139

Cite this

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AB - We study a robust portfolio optimization problem under model uncertainty for an investor with logarithmic or power utility. The uncertainty is specified by a set of possible Lévy triplets, that is, possible instantaneous drift, volatility, and jump characteristics of the price process. We show that an optimal investment strategy exists and compute it in semi-closed form. Moreover, we provide a saddle point analysis describing a worst-case model.

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KW - nonlinear Lévy process

KW - utility maximization

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ROBUST UTILITY MAXIMIZATION WITH LÉVY PROCESSES

Abstract

Bibliographical note

ASJC Scopus Subject Areas

Keywords

Access to Document

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