IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Robust utility maximization in a stochastic factor model

Listed author(s):
  • Hernández-Hernández Daniel
  • Schied Alexander
Registered author(s):

    We give an explicit PDE characterization for the solution of a robust utility maximization problem in an incomplete market model, whose volatility, interest rate process, and long-term trend are driven by an external stochastic factor process. The robust utility functional is defined in terms of a HARA utility function with negative risk aversion and a dynamically consistent coherent risk measure, which allows for model uncertainty in the distributions of both the asset price dynamics and the factor process. Our method combines two recent advances in the theory of optimal investments: the general duality theory for robust utility maximization and the stochastic control approach to the dual problem of determining optimal martingale measures.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: https://www.degruyter.com/view/j/stnd.2006.24.issue-1/stnd.2006.24.1.109/stnd.2006.24.1.109.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by De Gruyter in its journal Statistics & Risk Modeling.

    Volume (Year): 24 (2006)
    Issue (Month): 1/2006 (July)
    Pages: 1-17

    as
    in new window

    Handle: RePEc:bpj:strimo:v:24:y:2006:i:1/2006:p:17:n:2
    Contact details of provider: Web page: https://www.degruyter.com

    Order Information: Web: https://www.degruyter.com/view/j/strm

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as
    in new window


    1. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
    2. Alexander Schied & Ching-Tang Wu, 2005. "Duality theory for optimal investments under model uncertainty," SFB 649 Discussion Papers SFB649DP2005-025, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany, revised Sep 2005.
    3. Thomas J. Sargent & LarsPeter Hansen, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May.
    4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    5. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    6. Denis Talay & Ziyu Zheng, 2002. "Worst case model risk management," Finance and Stochastics, Springer, vol. 6(4), pages 517-537.
    7. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bpj:strimo:v:24:y:2006:i:1/2006:p:17:n:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.