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Power Utility Maximization in Constrained Exponential L\'evy Models

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  • Marcel Nutz
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    Abstract

    We study power utility maximization for exponential L\'evy models with portfolio constraints, where utility is obtained from consumption and/or terminal wealth. For convex constraints, an explicit solution in terms of the L\'evy triplet is constructed under minimal assumptions by solving the Bellman equation. We use a novel transformation of the model to avoid technical conditions. The consequences for q-optimal martingale measures are discussed as well as extensions to non-convex constraints.

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    File URL: http://arxiv.org/pdf/0912.1885
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 0912.1885.

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    Date of creation: Dec 2009
    Date of revision: Sep 2010
    Publication status: Published in Mathematical Finance, Vol. 22, No. 4, pp. 690-709, 2012
    Handle: RePEc:arx:papers:0912.1885

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