Risk Aversion Asymptotics for Power Utility Maximization
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for general semimartingale models while the convergence of the optimal trading strategy is obtained for continuous models. The limits are related to exponential and logarithmic utility. To derive these results, we combine approaches from optimal control, convex analysis and backward stochastic differential equations (BSDEs).
|Date of creation:||Mar 2010|
|Publication status:||Published in Probability Theory and Related Fields, Vol. 152, No. 3-4, pp. 703-749, 2012|
|Contact details of provider:|| Web page: http://arxiv.org/|
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- Sara Biagini & Marco Frittelli, 2005. "Utility maximization in incomplete markets for unbounded processes," Finance and Stochastics, Springer, vol. 9(4), pages 493-517, October.
- Yuri M. Kabanov & Christophe Stricker, 2002. "On the optimal portfolio for the exponential utility maximization: remarks to the six-author paper," Mathematical Finance, Wiley Blackwell, vol. 12(2), pages 125-134.
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